Taiwan law requires domestic custody for stablecoin reserves

Taiwan’s legislature approved the Virtual Asset Service Act on June 30, creating a licensing and supervisory regime for virtual asset service providers and stablecoin issuers. The law requires issuers to hold full reserve backing, keep reserves segregated in trust at domestic financial institutions, undergo regular external audits and refrain from paying interest or other returns to token holders.

Under the act, virtual asset service providers and stablecoin issuers must obtain approval from the Financial Supervisory Commission before operating. Applicants must meet standards for internal controls, cybersecurity and business continuity. The law expands existing anti-money laundering requirements by making licensing decisions contingent on business models, capital structure, customer protections and operational systems, not only baseline AML controls.

Stablecoin provisions require reserve assets to be segregated and held in trust through domestic banks or trust companies. Those reserve assets are protected from creditor claims if an issuer enters bankruptcy. Legal analysis published before passage noted the Financial Supervisory Commission will consult the central bank on approvals and may impose additional reserve requirements for larger issuances.

Firms that completed AML registration before the law takes effect will have 12 months to apply for the new licenses and 21 months to obtain approval. Exact timing depends on the law’s effective date and the publication of secondary rules. Authorities must still define eligible reserve assets, disclosure requirements, redemption procedures and how stablecoins already in circulation will be treated for domestic trading and custody.

The statute makes domestic custody and audited reserves a condition of lawful issuance. Because segregation, domestic custody and audit obligations must be met before large-scale issuance is permitted, banks, trust companies, auditors and regulated custody platforms are positioned as participants in the issuance and custody chain.

The law sets criminal and financial penalties. Unauthorized virtual asset operations or stablecoin issuance can carry up to seven years in prison and fines up to NT$100 million. Fraud or market manipulation carry sentences of three to ten years and fines ranging from NT$10 million to NT$200 million.

Regulators will issue secondary rules that determine whether nonbank issuers can meet reserve, custody and audit obligations directly or must partner with domestic financial institutions to qualify for licenses.