Taiwan's financial regulators have issued a stark warning to the crypto sector, approving stringent new legislation that introduces severe penalties for unlicensed operations and fraudulent activities involving stablecoins and other digital assets. The move signals a major regulatory tightening as authorities aim to clamp down on illicit activity within the burgeoning market.

Taiwan Approves $6M Fines To Combat Crypto Fraud

On Friday, local news outlets reported that the Executive Yuan passed the draft of the Virtual Asset Service Act (VASA) on April 2, marking a major step to regulate crypto assets in Taiwan.

The VASA, introduced by the Financial Supervisory Commission (FSC) last year, supports the efforts by Taiwanese authorities to establish a comprehensive crypto framework for Virtual Asset Service Providers (VASPs) and stablecoin issuers.

In 2024, the FSC overhauled its Anti-Money Laundering (AML) framework to include crypto businesses, adding stricter AML guidelines for VASPs and requiring all digital asset firms to complete the AML registration by September 2025.

Premier Cho Jung-tai explained that the new framework, which will be implemented in four gradual phases, includes industry self-regulation and an AML compliance registration system. The measures aim to enhance the security of virtual asset transactions, pilot custody services, and support the growth of domestic financial innovation, he added.

According to the reports, the draft requires VASPs to operate exclusively in this field and meet specific standards for their company name, organizational structure, and capital. Financial institutions can also operate VASP services in addition to their other businesses, if approved.

In addition, special regulations would be customized to suit the nature of each service provider. For instance, trading platforms would be required to establish clear guidelines for listing and delisting virtual assets.

The draft also includes heavy penalties for unlicensed and fraudulent activities, with offences involving crypto falsification, concealment, or price manipulation risking 3-10 years in prison and fines of up to NTD 200 million, worth $6.25 million.

Meanwhile, firms that issue stablecoins without a license could face up to seven years in prison and fines of up to NTD 100 million, or about $3.13 million, according to the draft.

New Stablecoin Regulations To Prohibit Interest Payments

Officials outlined the main differences between the recently passed VASA draft and the FSC’s original text regarding stablecoin guidelines, which include issuance and redemption regulations, restrictions on interest or returns, and internal control and cybersecurity management.

Under the new draft, the issuance and redemption of stablecoins must be conducted at face value, and issuers may not refuse redemption requests from holders. Issuers are also prohibited from paying interest or returns to holders on the stablecoins they issue, aligning with international trends.

Lastly, issuers must establish and maintain robust internal control and audit systems, along with information security management mechanisms, to ensure the proper issuance and redemption of stablecoins.

FSC Deputy Chairman Chen Yen-liang asserted that stablecoin issuance is not currently limited to banks, but noted that the financial institutions are “generally better positioned to meet the relevant requirements” due to their capital strength and risk management capabilities.

For other operators, different capital thresholds and operating guarantee requirements would be set based on the nature of their business, with further details to be announced after the legislation officially passes.

In December, FSC Chairman Peng Jin-long revealed that the island’s first regulated stablecoin could debut this year. As reported by Bitcoinist, stablecoin-centered regulations would be developed within six months after the VASA’s approval, setting the launch of locally issued tokens pegged to the NTD or the USD to the second half of 2026.

Deputy Chairman Chen added that the regulator would adopt a “gradual opening” model, and relevant regulations would be developed by authorities alongside the Central Bank.