Taiwan's Legislative Yuan passed the Virtual Asset Service Act on July 1, creating the country's first comprehensive regulatory framework for digital assets and subjecting unlicensed operators to up to seven years in prison and fines of NT$100 million ($3.1 million).

The bill now heads to President Lai Ching-te, who is expected to sign it within 10 days. The cabinet will then set an effective date. Once in force, the law places every Virtual Asset Service Provider (VASP) operating in Taiwan under the supervision of the Financial Supervisory Commission (FSC).

Who must obtain a license?

The statute covers seven categories of VASPs, including:

• Crypto exchanges and trading platforms
• Custodians
• Lenders
• Brokerage operators
• Advisory service providers
• Token issuers
• Other entities defined by the FSC

Each category must meet requirements covering internal controls, cybersecurity, token listing and delisting procedures, customer asset segregation, and financial reporting.

What transition windows apply?

Companies and individuals that completed Anti-Money Laundering (AML) registration before the law takes effect receive 12 months to apply for a license and 21 months to secure full FSC approval.

Kevin Cheng, founder of crypto consultancy Harmony Governance Advisors, told The Block that the law eliminates the regulatory ambiguity that many crypto businesses previously operated within. "Unless VASPs can strengthen their competitive advantages before these new entrants arrive, they could face intense competitive pressure," he said.

Cheng noted that the framework permits traditional financial institutions to enter the VASP space, opening the sector to bank-affiliated competitors for the first time.

How will the stablecoin regime work?

Stablecoins issued in Taiwan will require approval from both the FSC and the central bank. Issuers must hold full reserve backing with a trustee and submit to regular audits. The FSC said the dual-approval structure is intended to align Taiwan with international market practices.

Titan Cheng, chairman of the Taiwan VASP Association and founder of exchange BitoGroup, said the industry group plans to help regulators draft implementing rules and support firms through the transition.

What criminal penalties apply?

The law sets distinct penalties for different offenses:

• Unlicensed VASP operation or stablecoin issuance: up to 7 years in prison and fines up to NT$100 million ($3.1 million)
• Fraud and market manipulation: 3 to 10 years in prison, with fines ranging from NT$10 million ($300,000) to NT$200 million ($6.3 million)

The criminal exposure marks a sharp escalation from Taiwan's prior AML-based registration regime, which carried administrative sanctions only.

What comes next?

Lawmakers also passed a separate resolution directing the FSC to draft a plan within one year governing the offering of derivative crypto commodity services. The FSC said the move aims to diversify investment options and strengthen the sector's institutional foundation.

Taiwan becomes the fourth major Asia-Pacific jurisdiction to enact a formal digital asset framework, following Japan, Singapore, and Hong Kong. The cabinet's effective date decision and the FSC's forthcoming implementing rules will determine how quickly the new competitive landscape materializes.