Challenges and Opportunities in Taiwan’s VASP Regulation

With the rapid growth of Virtual Asset Service Providers (VASP) in the global fintech arena, Taiwan is gradually enhancing its regulatory framework. From compliance declarations to registration systems and the upcoming licensing regime, the Financial Supervisory Commission (FSC) of Taiwan is moving towards stricter regulation.

This transformation presents both challenges and opportunities for the virtual asset market. This article will explore the impact of the current regulatory framework on Taiwan’s VASP ecosystem, analyzing potential enforcement challenges, market opportunities, and future development directions.

Regulatory Evolution: From Looseness to Strictness

The regulation of VASP in Taiwan has undergone three phases:

• Compliance Declaration (2021-2024): Operators are only required to submit Anti-Money Laundering (AML) declarations, representing a self-regulatory phase.
• Registration System (Starting 2024): The “Anti-Money Laundering Registration Regulations for Businesses or Individuals Providing Virtual Asset Services” requires operators to register with the FSC, submit internal control systems, and undergo supervision.
• Licensing System (Expected after 2025): In the future, VASP will be required to obtain licenses, meeting capital and personnel qualification requirements; operating without a license may result in up to 7 years of imprisonment and fines of NT$20 million.

This evolution indicates that Taiwan is transitioning from a lenient exploratory phase to a mature regulatory framework, gradually aligning with international standards (such as FATF recommendations). Interested readers can refer to my other article for a detailed explanation: “Analyzing the Evolution of Taiwan’s VASP Regulation: From Compliance Declarations to Registration Systems, and Moving Towards a Licensing System.”

Challenges: Compliance Pressure and Enforcement Issues

Compliance costs are squeezing the survival space of small and medium-sized enterprises:

The current registration system requires operators to submit detailed internal control documents, verified by accountants, and the future licensing system may further raise capital and technical thresholds. For small and medium-sized operators (especially OTC coin dealers), the increased manpower and capital costs may be unbearable. For instance, custodians need to strengthen cold and hot wallet management, posing challenges for small operators with limited technical capabilities. The market may thus accelerate integration, leading to the exit or acquisition of small and medium-sized operators.

Offshore entities beyond jurisdiction:

Even with tightened regulation, offshore VASP may still serve Taiwanese users through VPN or other technical means. International experience shows that China’s comprehensive ban and Japan’s licensing system have not completely eradicated unlicensed operations. If Taiwan cannot effectively block these platforms or collaborate internationally to track cross-border transactions, the deterrence of regulation will be limited.

The challenge of balancing innovation and regulation:

Excessively stringent regulations may stifle emerging applications, such as decentralized finance (DeFi) or NFT platforms. Although the current registration system covers a broad definition of virtual assets, regulatory details for these new fields remain unclear, leaving operators struggling between compliance and innovation.

Opportunities: Market Maturity and Enhanced International Competitiveness

Improved market transparency and investor confidence:

As the regulatory environment becomes increasingly clear, Taiwan’s high-net-worth clients and listed companies are showing greater willingness to participate in the virtual asset market. For example, the asset segregation and information disclosure requirements under the registration system reduce the risk of fraud, while further regulations under the licensing system may promote the integration of traditional finance and virtual assets. This aligns with international trends—such as U.S. institutional investors and companies (e.g., MicroStrategy) actively entering the cryptocurrency space due to improved compliance conditions.

Expansion opportunities for financial institutions and large operators:

Financial institutions (such as banks and electronic payment services) may accelerate the integration of virtual asset services due to clearer regulations, providing cryptocurrency payment or settlement functions. For large VASP with sufficient capital and mature technology (such as local exchanges), strict regulation is not only a challenge but also an expansion opportunity. These operators can easily meet compliance requirements, capturing market share after the exit of small and medium-sized operators and collaborating with payment companies to explore new business.

Strengthening international status and aligning with trends:

Taiwan’s regulatory framework references international practices (like the EU’s MiCA and Japan’s Fund Settlement Law), showcasing its potential to become a leader in virtual asset regulation in Asia. With the implementation of the licensing system, Taiwan may attract more international VASP and high-net-worth investors, gaining recognition in organizations like FATF. This is in line with global trends—compliance markets are becoming the preferred choice for high-net-worth clients and enterprises to enter.

Conclusion and Outlook: Who Wins and Who Loses?

Winners: Large exchanges and custodians that can afford compliance costs and benefit from market consolidation.

Losers: Small and medium-sized OTC operators and technologically lagging platforms that may exit due to failure to meet standards.

Unknowns: Offshore operators may still capture local market share if they evade regulation, testing enforcement capabilities.

The gradual upgrade of Taiwan’s VASP regulation brings both challenges and opportunities. For operators, compliance costs and enforcement loopholes are short-term pain points; however, in the long run, a stable regulatory environment will drive market maturity and attract international attention. If the FSC can find a balance between strict regulation and industry development, drawing on international experience and making flexible adjustments, Taiwan not only can solve current issues but may also become a benchmark in the Asian virtual asset market.

For VASP operators, adapting to rules and seizing opportunities is key—only those who survive in this regulatory evolution will be the winners.