In a significant move for the financial and digital asset sectors, Taiwan's Financial Supervisory Commission (FSC) announced the approval of three banks to pilot Bitcoin custody services. This initiative allows CTBC Bank, KGI Bank, and Union Bank of Taiwan to operate these services under a six-month trial period.
This marks the first instance of licensed banks in Taiwan offering custody services for virtual assets like Bitcoin. The approved banks will be subject to a maximum exposure limit of $20 million USD (approximately NT$590 million) for their Bitcoin custody operations during the trial.
Approved Participants and Application Process
The FSC launched a thematic pilot program for "Virtual Asset Custody Business" in late 2024, releasing detailed guidelines and a Q&A document. Financial institutions were invited to apply from January 1, 2025, until the end of April.
Four banks initially submitted applications. While CTBC Bank, KGI Bank, and Union Bank have received approval, Cathay United Bank's application is still under review. Reports indicate that at least two other private banks have expressed interest in joining future rounds.
How Banks Safeguard Virtual Assets
Banks employ advanced security measures to protect clients' digital assets. Two primary custody mechanisms are prevalent:
- Offline Cold Storage: Private keys, which grant access to cryptocurrencies, are stored entirely offline on hardware devices not connected to the internet, significantly reducing the risk of hacking.
- Multiparty Computation (MPC) or Sharding: The client's private key is split into several encrypted fragments (shards). These shards are then distributed across multiple secure environments, such as cloud servers, dedicated hardware security modules (HSMs), or a hybrid architecture. This method requires consensus from several parties to reconstruct the key, preventing any single point of failure.
According to FSC Banking Bureau Deputy Director General Wang Yun-zhong, the approved pilots primarily utilize the second method—splitting and safeguarding the client's private keys. The banks are partnering with domestic virtual asset exchanges to provide these services.
Objectives and Review Process Post-Trial
The six-month pilot phase is designed to test the viability and security of these custody solutions. Upon completion, each participating bank must submit a detailed report to the FSC. This report will cover:
- The volume of business conducted
- The effectiveness of internal control systems
- Anti-money laundering (AML) audits and compliance
- Handling of customer complaints and issues
The FSC will use these findings to evaluate the need for new or amended regulations. Until formal laws are established, any bank wishing to offer these services must continue to operate under the pilot program model. For those looking to understand the technology behind these security measures, you can 👉 explore advanced custody solutions.
Benefits for the Financial Ecosystem
This pilot program represents a strategic step forward for multiple stakeholders:
- For Banks: This initiative opens a new revenue stream through custody fees, which are typically calculated as a percentage of the assets under management. It also serves as a critical entry point for traditional financial institutions to explore and engage with the burgeoning digital asset economy.
- For Exchanges: Partnering with regulated banks for third-party custody enhances the overall security of their platforms. It allows them to offer users a more secure and trustworthy service.
- For Investors: The involvement of established, regulated banks significantly boosts trust in virtual asset platforms. Investors can trade with greater confidence, knowing that a portion of their assets is held by reputable financial institutions with robust security protocols.
This development creates a potential win-win scenario, fostering growth and stability across the entire digital asset landscape in Taiwan.
Frequently Asked Questions
What does Bitcoin custody mean?
Bitcoin custody refers to the safeguarding of investors' private keys—the cryptographic passwords needed to access and transfer Bitcoin—by a third-party service. Banks use highly secure methods, like cold storage or sharding, to protect these keys from theft or loss, similar to how they protect traditional assets.
Why is bank involvement in crypto custody important?
Banks are heavily regulated and have stringent security and compliance standards. Their entry into crypto custody provides a much higher level of trust, insurance, and legitimacy for investors who are wary of storing digital assets on less-regulated exchanges or in personal wallets. It bridges the gap between traditional finance and the new digital economy.
How is my Bitcoin kept safe in a bank's custody?
Approved banks use institutional-grade security. Most split your private key into encrypted fragments stored in different, secure locations. This means no single person or system holds the complete key, drastically reducing the risk of unauthorized access. These systems are audited regularly for compliance.
What happens after the six-month pilot ends?
After the trial period, the banks will report their findings to the financial regulator. The FSC will then assess the results, including security performance and customer feedback, to decide on a full regulatory framework. This will determine how these services are offered permanently.
Can any individual or business use these custody services?
Initially, these services are being piloted in partnership with domestic virtual asset exchanges. Typically, the end-users are the exchange's clients. Interested individuals and businesses should check with the participating banks or their preferred exchange for specific eligibility and access details.