Taiwan's Financial Supervisory Commission (FSC) has been pushing to regulate virtual asset providers in four phases since last year, aiming to submit a virtual asset special law to the Legislative Yuan before June, causing public discontent and social uproar. Now, the Securities and Futures Bureau has issued new regulations, completely banning virtual asset providers from cash transactions. Industry experts point out that this is completely disconnected from international trends and may suppress crypto business opportunities and innovation. Citizens may turn to offshore or underground trading due to highly restrictive low liquidity, rendering supervision meaningless.
Securities and Futures Bureau Announces New Regulations
The FSC's Securities and Futures Bureau today issued new regulations for Taiwan's VASP providers. Although the official document has not been obtained, Block has confirmed the news with the bureau, with the following four main points:
- Mandatory compliance for all virtual currency providers (exchanges) on the registered list
- Customers cannot use cash to buy and sell crypto, previously done through exchange physical stores or special arrangements for large cash transactions.
- Existing online trading customers remain unaffected as transactions go through banks.
- Primarily because law enforcement often encounters tracking difficulties during cash transactions in fraud cases.
Comprehensive Ban on OTC and P2P Trading?
It must be noted that last November, the FSC led the revision of the Anti-Money Laundering Act, defining transactions "on behalf of others" without VASP trader registration as a violation punishable by up to seven years in prison.
Block recently contacted experts to explain that the amendment will significantly limit the feasibility of private P2P trading, effectively drawing a red line on all private transactions.
Today's FSC regulations further announce that even with a VASP license, operators cannot run offline exchange shops or Bitcoin ATMs, essentially banning offline cash and crypto transactions between individuals and institutions.
Expert and Public Reactions
Regarding the latest regulations, Block consulted an anonymous former exchange operator with 7 years of industry experience. He stated that the FSC's comprehensive OTC trading ban will "definitely cause major issues" because OTC is not just for illegal money laundering, but a crucial market-making and risk control method for exchanges, and a mainstream channel for venture capital investment in emerging projects. The complete OTC trading halt is unfavorable for domestic virtual asset providers, potentially causing both large and small customers to "flee at the sight of a Taiwanese license":
I guess FSC officials issued this regulation due to recent offline exchange money laundering cases, but they've fundamentally misunderstood many things. Over-the-counter trading is a natural liquidity tool in finance and economics. Even for fiat currency, high-risk businesses keep cash in their internal vaults for emergencies (like Nintendo). Should the FSC restrict their ability to conduct private transactions? Wouldn't that be clipping their wings for survival and business liquidity?
In the virtual asset industry, market makers, project teams, and exchanges often use OTC trading to maintain liquidity during price volatility. By imposing such restrictions and requiring full compliance, the compliance process might not be complete before an exchange faces a liquidity crisis. With OTC trading prohibited, I suspect local businesses will control customer fund flows more strictly than before.
Due to delayed fund transfers, local licensed exchanges have already lost many customers, and this will only drive more away because customers miss trading opportunities due to compliance costs...
Not to mention venture capitalists who use OTC trading with large funds to acquire future token promises, typically to avoid direct market volatility. By blocking this funding channel, VCs won't be willing to invest in Taiwan, and businesses or startups will relocate to offshore registration in places like Singapore or Dubai to survive.
Additionally, Block interviewed a 10-year crypto veteran "A Wei", who wrote in stating that the FSC's OTC ban will cause a collapse in Taiwan's crypto innovation industry and trading functionality:
Where does token value come from? You must allow free circulation, and the market will naturally reveal their value. But for tokens unable to list on compliant exchanges, how can their value be proven? If regulations don't allow any OTC trading, even tokens with economic value cannot be traded, effectively restricting token innovation.
Taiwanese companies will be unfortunate. Any new virtual asset issuance will be impossible if they can't afford compliant exchange listing fees (expected to become extremely expensive). This means virtual assets under Taiwan's jurisdiction will be trapped in an innovation-less closed sandbox.
The most terrifying aspect of this sandbox is that users can only "eat meat" when Bitcoin and Ethereum rise overseas, which means the Financial Supervisory Commission is essentially treating it as a pure Ponzi cage, ignoring the potential new value brought by innovation within this sandbox.
Such regulations have less freedom than the securities market, where at least new companies are allowed to sell stocks over the phone... So I want to ask, what is the meaning of opening this virtual asset market? Isn't it just the regulatory authority's wishful thinking that they can trap fraud criminals?
With such strict regulations, people will run away when they see licenses issued by Taiwan's Financial Supervisory Commission. Would fraud criminals stay to be managed? This is a completely inverted regulation.
How Should Affected Businesses Respond?
Given that the regulation affects many citizens and traders, and businesses and citizens who expect to be impacted should quickly express their views on the VASP special law's content and direction through the Financial Supervisory Commission's public mailbox, which may be the current only remedy channel.
Experts also urge the government to hold multiple public hearings facing the public before implementing the regulation, listen to the opinions of people, local businesses, overseas businesses, and investors, and avoid the law becoming a "nominal anti-fraud" measure that actually disrupts and destroys innovation:
https://fscmail.fsc.gov.tw/pop30/mailboxhome
