The Financial Supervisory Commission (FSC) in Taiwan has stated that it will begin trials of virtual asset custody services. The trials seek to advance financial services in cryptocurrency, making it possible for banks to manage and store Bitcoin, Ethereum and other cryptocurrencies.
This announcement opens a new page of the collaboration between traditional financial institutions and the cryptocurrency sector. The FSC has revealed that three private banks have already signed up to take part in the pilot scheme.
The trial is to commence in the first quarter of 2025. The initiative is in line with the FSC’s overall approach to supervising the virtual asset sector, as it sets out rules and best practices for the industry’s growth.
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Trial Details and Participation Requirements
The initiative from the FSC will permit financial institutions to pitch a thematic business experiment related to virtual asset custody. Hu Zehua, Director of the Comprehensive Planning Division of the FSC, said that the Commission will issue an explanation.
In addition, it will accept public comments for 15 days before accepting formal applications from financial institutions. After getting feedback from the stakeholders, the FSC will review the trial rules. They will identify the final date of application acceptance.
As part of the trial, the banks will be expected to identify the categories of virtual assets they will be able to handle. These are common cryptocurrencies such as the Bitcoin, Ethereum, and Dogecoin.
Furthermore, they should provide information on the intended clients of their custody services. These may include cryptocurrency exchanges, institutional and professional investors, or retail investors. The Commission also pointed out that the security of custody services would be a major concern.
Virtual asset custody services may involve managing significant amounts of digital currencies. Banks need to implement adequate security measures to mitigate the risk of theft or breaching of digital currency.
The FSC will also concentrate on AML measures to help financial institutions prevent virtual assets that are linked to criminal activities.
Growing Interest Among Banks and Institutions
Three private banks in Taiwan have already expressed their interest in providing virtual asset custody services. These banks are interested in offering their services in the form of custody to different customers.
Certain securities firms displayed interest in the trial, and the FSC pointed out that these firms have relatively low capital to meet the stringent security standards for virtual asset management. Consequently, only banks affiliated with these securities firms within the same corporate groups may apply instead.
Hu Zehua noted the international banks engaged in virtual asset custody are mostly interested in providing services to crypto exchanges. This is at first and then extended to institutions. He also stated that such services are not easily available to the retail investors as foreign banks do not initiate such services.
The FSC also plans to adopt this approach by focusing on security and only later expanding the range of related services.
Regulatory Developments in Virtual Asset Industry
FSC is also in the process of creating a special legal framework for the virtual asset business. The draft law is to be presented before the end of 2024.
It will outline the legal structure of the industry in Taiwan. This is to ensure that businesses and financial institutions undertaking virtual asset activities have a better understanding and direction on the legal framework they are expected to follow.
The FSC’s decision to conduct virtual asset custody trials follows similar moves by other global financial centers in this area. For instance, Standard Chartered Bank has recently started offering digital asset custody services in the United Arab Emirates. Bitcoin and Ethereum as the initial assets.
The service is primarily targeted at institutional investors. SC is looking to launch more products in the future that include more digital assets.
Likewise, the Bank of New York Mellon (BNY) has secured the green light from the US authorities to provide cryptocurrency custodial services to asset managers who have ETPs in their portfolios.
However, regulating bodies in the United States of America remain a challenge to banks wishing to offer digital asset custody services. Assets must reflect in the balance sheet and this is rather unachievable under the current rules.
