Taiwan’s New Crypto Law Could Push Out Small Players—Here’s Why

Taiwan is moving closer to regulating its cryptocurrency industry with a proposed special crypto law. The Financial Supervisory Commission (FSC) and lawmaker Huang Shan-shan have each drafted their own versions of the “Virtual Asset Service Act,” which would require crypto platforms to obtain licenses and comply with stricter regulations.

The FSC officially published a draft of the “Virtual Asset Service Act” last week, while Huang released her version of the law on Tuesday. Both drafts outline licensing requirements for crypto platforms operating in Taiwan, including foreign providers, which would need to set up entities in the country and obtain the necessary approvals.

The law will receive its initial reading as per Huang’s plans before the regulatory body seeks its official ratification at the end of this year. From May 24 until June the FSC will collect public responses to its draft which it intends to finalize for review by the Executive Yuan by June’s end.

Increased Compliance Costs for Crypto Firms

Industry players have expressed concerns that the proposed law would raise compliance costs for crypto firms. Taiwan currently requires virtual asset service providers to follow anti-money laundering (AML) regulations, with non-compliance leading to potential imprisonment or fines of up to NT$5 million ($150,400).

Eddie Hsiung, a partner at the law firm Lee and Li, noted that existing AML requirements have already raised costs. He suggested that crypto firms should be regulated based on their size to ease the burden on smaller businesses.

Kevin Cheng, a crypto lawyer and secretary general of the Taiwan Fintech Association, explained that the proposed law would raise operational standards to levels similar to 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.

Challenges for Smaller Crypto Firms

The proposed regulations may create challenges for small and medium-sized crypto businesses, as many may struggle to meet the new financial and operational requirements. Some industry experts fear that the higher threshold could lead to market consolidation, with only larger companies able to comply.

A lack of liquidity has also been a concern for some local exchanges. Cross-border liquidity solutions could help address this issue, but tighter regulations may limit these options.

Call for Balanced Regulations

The public hearing session witnessed Damien Ho from Binance’s APAC team explain that market accessibility and risk management should be balanced in regulations. He stated, 

“Regulation should aim to provide investors in Taiwan with greater liquidity and a more stable trading environment.”

Participants within the industry maintain their efforts to develop regulatory standards which protect investors and boost market expansion because the law’s final draft undergoes ongoing assessment.