Former US assistant secretary of Treasury says Taiwan's VASP regulation likely to pass soon

Taiwan is on track to enact its first comprehensive digital asset law in the first half of 2026, as regulators, lawmakers and industry experts converge on a framework balancing innovation with financial stability.

A long-anticipated statute nears passage

Taiwan’s long-evolving approach to digital assets is reaching an inflection point. After years of piecemeal oversight and incremental guidance, authorities are now advancing the Draft Virtual Asset Service Act, widely expected to pass in the first half of 2026.

The legislation would mark the island’s first dedicated statute governing virtual asset service providers (VASPs), replacing a fragmented regime with a unified licensing system and a stronger investor protection framework.

The Financial Supervisory Commission (FSC), Taiwan's independent, cabinet-level financial regulator, assumed the lead oversight role in 2023 and has progressively tightened supervision since then.

A review in September 2025 found significant compliance gaps, with only a minority of operators meeting anti-money laundering (AML) requirements. As of late March 2026, the FSC's Securities and Futures Bureau said eight virtual asset platforms are currently recognized as compliant, down from nine in 2025.

Against this backdrop, the Draft Virtual Asset Service Act is designed to formalize market entry rules, strengthen compliance obligations, and bring offshore operators within Taiwan’s regulatory perimeter. Under the draft, Taiwan’s VASPs would shift from registration to a stricter licensing system.

VASP regulation likely to pass soon, says former US official

Lawyer Mitchell Silk, former US assistant secretary of the Treasury for International Trade and Development, said at a March 12 lecture at National Chengchi University that the draft law reflects Taiwan regulators' desire to shift toward proactive governance of virtual assets.

Speaking on Taiwan’s trajectory, Silk characterized the global digital asset framework as “crystallizing,” warning that passive observation is no longer viable for regulators and that board-level action is required now for the industry.

He outlined Taiwan’s regulatory evolution in five stages: a pre-2021 gray zone with minimal binding rules when compliance gaps accumulated; a 2021 AML-focused narrow scope registration regime; a post-2023 phase in which the FSC became the lead regulator and issued non-binding guidance; a 2025 snapshot where 18 of 27 VASPs were deemed non-compliant and ordered to cease operations; and a 2026-onwards phase in which the first dedicated statute may pass in the first half of the year.

The forthcoming Act, he said, will elevate the system to a full licensing regime, something he acknowledged given the sector’s rapid growth.

Silk told TCN that the draft law rests on five pillars: licensing, stablecoin regulation, investor protection, self-regulation, and future-proofing. The last pillar includes a catch-all clause allowing authorities to extend oversight to new services as the market evolves, he said.

Silk emphasized that Taiwan has made a deliberate policy choice to position banks as the “institutional spine” of its digital asset ecosystem. Under this model, licensed financial institutions would play central roles in custody, stablecoin issuance, VASP banking, and real-world asset (RWA) tokenization.

Silk added that stablecoin issuance, in particular, would require full reserve requirements, regulatory approval, and independent audits, effectively creating a deposit-like liability structure within the banking system.

This design reflects regulators’ dual mandate: fostering innovation while safeguarding the market. Silk called Taiwan's financial authorities "prudent," adding that the FSC's responsibilities — financial stability, consumer protection, market integrity and illicit finance prevention — are "inextricably linked to VASPs."

Legislators, local industry weigh opportunity against prudence

For Taiwanese legislator Ko Ju-chun (葛如鈞), the stakes extend beyond compliance to the future architecture of the digital economy. He argued that as machine-to-machine transactions proliferate — driven by AI agents and automated systems — traditional fiat currencies may no longer dominate transactional flows.

“In the virtual era, it’s not just humans trading,” he said on his podcast, envisioning a landscape where AI systems transact using digital tokens, potentially including an NTD-backed stablecoin.

Ko said the Act would require offshore platforms to register locally or face restrictions. In practice, he said, global platforms without a Taiwan presence — such as OpenSea — may be blocked from serving Taiwanese customers.

He said that this approach is stricter than in many Western jurisdictions, where authorities have only limited the ability of offshore platforms without a local presence to solicit users through advertising. Ko concluded that such measures could nudge users toward domestically regulated platforms.

Consumer protection remains critical to the regulatory agenda, Nicholas Yang (楊俊書), director of Taiwan Association for Blockchain Ecosystem Innovation (TABEI) and head of digital strategy at O-Bank, Taiwan’s first native digital bank, said during an interview on Ko's podcast. 

Yang framed the issue from a user perspective: “At the end of the day, consumers want assurance that their money won’t just disappear, even only for a few while, for no reasons.”

Expanding financial functions: lending, custody, and beyond

Another notable feature of the draft law is its explicit recognition of virtual asset lending. Yang described this as a natural extension of traditional financial services — “taking what banks have always done and applying it to digital assets.”

In practice, he said, this means enabling asset holders to deploy otherwise idle holdings to generate returns, subject to risk management and credit assessment.

Similarly, Ko also stated that the latest developments would allow people to benefit from the stablecoins they hold. He said this fundamental change could, particularly in cross-border payments, reduce settlement delays that have historically imposed significant opportunity costs on capital-intensive industries.

Ko also pointed to Florida’s unanimous passage of a state-level stablecoin framework as evidence of intensifying global competition for capital, talent, and international firms in the virtual asset world.

Such policies, he argued, are designed to attract “people, enterprises, and cashflow” — a strategy Taiwan should emulate to remain competitive in the Web3 economy. He added thatsome estimates project a tenfold increase in global GDP due to digitalization and virtual assets.

Ko further noted emerging use cases in supply chain finance, where an estimated 5% to 7% of some transactions are now settled using stablecoins.

Silk highlighted the infrastructure banks must develop to support these activities surrounding virtual assets and stablecoins, including governance policies for asset movement, secure custody systems that minimize hot wallet exposure, blockchain forensics tools for AML compliance, Travel Rule infrastructure, and robust cybersecurity frameworks as well as incident responses.

Strategic outlook: 2026 as a turning point

Both policymakers and experts view 2026 as a pivotal year for Taiwan’s digital asset landscape. Ko noted that following the passage of the Artificial Intelligence Fundamental Act in 2025, this year is likely to be defined by advances in virtual assets and crypto regulation. 

He stated, in alignment with Silk's assessment, that the Act may soon pass in the first half of 2026.

Silk outlined a forward-looking timeline from 2026 onward: passage of the VASP Act and finalization of stablecoin rules in the first half of 2026; implementation and initial licensing approvals in the second half, with the RWA tokenization regulatory framework finalized concurrently; and, beyond 2027, full supervisory exam cycles for licensed VASPs and deeper cross-border regulatory coordination, particularly within the Asia-Pacific region.

For banks and financial institutions, the message is clear. Silk urged industry leaders to invest in compliance infrastructure, engage with custody pilots, develop stablecoin strategies, and elevate governance to the board level, and called on Taiwan's financial institutions to lead the regulatory dialogue and engage constructively with the FSC.

Asked on March 23 about Taiwanese banks’ current receptiveness to stablecoins, FSC Chairman Peng Jin-lung (彭金隆) said that, as highly trusted financial institutions, banks are expected to play a pivotal role in the custody of virtual assets.

Holders, he noted, may choose to store assets in their own digital wallets or entrust them to banks for safekeeping under custody or trust arrangements.

Peng added that the FSC is actively advancing pilot programs in this area, with around 19 banks expressing interest and five already participating in ongoing trials. The initiative aims to develop more efficient models that integrate the financial sector with the virtual asset industry, thereby strengthening public trust in the ecosystem, he said.