Taiwan Law Gives Banks Early Advantage in Stablecoin Market

Taiwan’s legislature passed the Virtual Asset Service Act on June 30, establishing a licensing framework for virtual asset service providers, including stablecoin issuers, trading platforms and custody services. The law requires stablecoin issuers to maintain full-reserve backing, place reserve assets in segregated trust accounts at domestic banks or trust companies, undergo regular audits and refrain from paying interest or other returns to token holders.

Virtual asset service providers must obtain approval from the Financial Supervisory Commission before operating and meet requirements for internal controls, cybersecurity and business continuity. Firms that completed anti-money-laundering registration before the law takes effect have 12 months to apply for licenses and 21 months to receive approval.

Reserve assets held for stablecoins are to be protected from other creditor claims if an issuer becomes insolvent. The Financial Supervisory Commission is expected to consult with the central bank on aspects of oversight. Regulators will evaluate business models, capital, customer protection and operational systems as part of licensing.

The law requires issuers to demonstrate reserve quality, custody arrangements and audit procedures. Managing reserve assets, proving segregation, meeting audit requirements, handling redemptions and arranging domestic custody are prerequisites for issuers seeking approval. Nonbank issuers may apply but must meet the same institutional obligations as other applicants.

Secondary rules must define issuer eligibility, reserve composition, disclosure standards, redemption procedures and the treatment of stablecoins currently used by traders but not authorized for domestic issuance. The law’s effective date and the timing of those secondary rules will determine how quickly the licensing regime is implemented.

Penalties for illegal operations include up to seven years in prison and fines up to NT$100 million for unlawful VASP activity or issuing stablecoins without authorization. Fraud or market manipulation related to virtual assets carries prison terms of three to ten years and fines ranging from NT$10 million to NT$200 million.

The law does not reserve issuance to banks, but by linking approval, full reserves, domestic custody, audits and a no-yield requirement to licensing, it establishes conditions that require domestic financial institutions to hold and protect reserve assets.