Taiwan mulls special crypto act that experts say may squeeze out small players

Taiwan's top financial regulator and a lawmaker have each drafted separate versions of a special crypto act as Taiwan moves a step closer to regulating the industry.

The Financial Supervisory Commission officially published a draft of the "Virtual Asset Service Act" last week, while Huang Shan-shan, a member of the Legislative Yuan, released her version on Tuesday. Both versions of the act seek to require all crypto platforms operating in Taiwan to apply for a license. Overseas crypto service providers would also be required to set up entities in Taiwan and obtain relevant licenses, according to the drafts seen by The Block.

In a public hearing at the parliament on Tuesday, lawmaker Huang said that she aims to finalize the draft and propose it for a first reading soon — with the goal of enacting the act by the end of this year. Meanwhile, the FSC is currently soliciting public feedback on its draft of the act until May 24 and plans to submit the draft bill to the Executive Yuan, the cabinet, for review by the end of June.

This isn’t the first time Taiwan has attempted to introduce a special crypto law . In 2023, a group of lawmakers proposed a similar bill, but it failed to advance before their term ended.

Compliance cost

The proposed crypto act would substantially increase compliance costs for crypto firms, several industry players said at Tuesday's public hearing.

Currently, Taiwan requires businesses or individuals providing crypto services operating in Taiwan to complete AML procedures and register their service capacity. Failure to do so may result in imprisonment for up to two years or a fine of up to NT$5 million ($150,400).

Eddie Hsiung, a partner at the law firm Lee and Li, said that the current AML requirements have already increased compliance costs for industry players — and he suggested regulating crypto firms by tier based on their size.

Kevin Cheng, a crypto lawyer and secretary general of the Taiwan Fintech Association, told The Block that the proposed crypto act would significantly raise standards for both management teams and operational practices to "a level comparable to those of financial institutions."

"Under the current registration-based regime, firms with NT$30 million to 50 million in capital still have some room to survive. However, in the upcoming era of a dedicated crypto act, even those with NT$300 million to 500 million in capital may find it difficult to stay in business," Cheng said.

Cheng noted that the draft crypto act raises the operational threshold to a level that small and medium-sized firms may no longer be able to meet.

On the other hand, a lack of liquidity remains a key challenge for some local crypto exchanges, with cross-border liquidity seen as essential to addressing the issue. 

Damien Ho, a representative of Binance's APAC team, said at the hearing that under appropriate risk management frameworks, "regulation should aim to provide investors in Taiwan with greater liquidity and a more stable trading environment."