Taiwan introduces a crypto bill to the Legislative Yuan

In other words, Taiwan has initiated the process of regulating digital assets by presenting a crypto bill to the Legislative Yuan for its initial consideration. The proposed legislation, known as the Virtual Asset Management Ordinance Draft bill, aims to establish a framework for virtual assets and intends to prescribe operational standards for entities handling virtual assets, ensure customer protection, and require these entities to become members of industry associations and secure regulatory permissions. 

According to coindesk.com, up until now, Taiwan has maintained a relatively hands-off approach to the digital asset sector, primarily subjecting it to existing anti-money laundering and know-your-customer regulations. However, there has been a notable shift in regulatory approach since the collapse of the cryptocurrency exchange FTX. FTX had garnered popularity among Taiwanese users due to its competitive US dollar interest rates compared to local banks.

More details about the proposed bill

In contrast to neighbouring Hong Kong's crypto regulations, the proposed bill does not adopt a strong stance on derivatives or stablecoins. Nevertheless, it acknowledges that derivatives linked to virtual assets possess distinct features, with a specific mention of perpetual contracts. This recognition leaves room for potential future regulations targeted specifically at crypto derivatives. 

The bill also refrains from limiting the trading of virtual assets to professional investors. Unlike Japan, where locally licenced exchanges are mandated to use custodians, the draft bill only necessitates the segregation of customer assets from business funds, without explicitly requiring third-party custodians. 

Under the proposed legislation, operators of exchanges are obligated to engage accountants to provide regular reports on their operations and the assets they manage. Furthermore, they must permit regulatory bodies, such as the Financial Supervisory Commission (FSC), to conduct routine inspections of their internal control and audit systems. 

Although this draft of the bill does not explicitly mention "Proof of Reserves," it indicates that regulators will establish standards for asset ratios in consultation with the industry, and licensed exchanges are expected to adhere to these standards. 

Stakeholders in Taiwan's cryptocurrency industry have expressed their support for formal regulatory oversight. For instance, representatives from the Taipei-based fintech firm XREX cited by coindesk.com, emphasised the industry's willingness to collaborate with the FSC in defining regulatory operations. 

At the time of writing, a second reading of the bill has not been scheduled, and the FSC is anticipated to contribute its recommendations to the draft bill before further progress is made.