Newsletter
Taiwan FSC to Launch Pilot Program for Virtual Asset Custody Business of Financial Institutions
Considering that it has gradually become an international trend for financial institutions to conduct virtual asset custody business, to support financial innovation and development, Taiwan's Financial Supervisory Commission ("FSC") launched a pilot program for financial institutions to render virtual asset custody services in November 2024. Relevant instructions were released, and financial institutions can apply from January 1, 2025 to April 30, 2025, with no quota limit. Certain key points of the pilot program are summarized as follows:
Applicants
Financial institutions may apply for participating in the pilot program. If an applying financial institution wishes to cooperate with a third-party service provider (e.g., software service provider or virtual assets service provider ("VASP")) to participate in the pilot program, there are no related conditions on such third-party service provider.
Scope of Pilot Program and Business Model
The scope of the pilot program is virtual asset custody business. There are no designated business models, so financial institutions may plan and propose business models as they see fit, subject to the FSC's approval.
The scope of "custody" covers the safekeeping or administration or providing instruments enabling administration of virtual assets, with full, significant part of, or indispensable authority over the transfer or authorization of virtual assets. If the "custody" business itself may involve the "transfer" of virtual assets, it is recommended to explain the possible "transfer" when applying.
The FSC recommends to include the following contents in the application documents (to the extent applicable):
(1) Types of virtual assets kept;
(2) The customers/ recipients of the custody service: VASPs, professional investors, general investors, etc.;
(3) Hardware or algorithm: such as Hardware Security Module (HSM); private key sharding technology by Multi-Party Computation (MPC); multisig wallets which enhance security and liability traceability; consensus algorithms, biometric technology, etc.;
(4) The custody process;
(5) Custody service volume;
(6) Information system architecture; and
(7) Patent applications.
In addition, the FSC explains that those considering the business model under which the hardware or algorithm for virtual asset custody is established by the VASP cooperating with the financial institution, and the financial institution will only keep part of the shards or private keys and the virtual assets cannot be transferred only with the private keys kept by the financial institution, may also submit applications for participating in the pilot program.
In terms of security, the FSC explains that financial institutions may make their own plans regarding liability for damage or loss of virtual assets under custody and related insurance planning guidelines, subject to the FSC's approval.
Pilot Program Period and Review Period
The pilot program will run for 6 months in principle, and the review period will be approximately 2 months.
The FSC will evaluate the results and experiences of this pilot program for potential policy-making. Whether the market will be fully open in the future for financial institutions to conduct virtual asset custody business will depend on the results of this pilot program.
Based on the aforementioned measures of the FSC, it is worth observing how financial institutions will enter the virtual asset custody business in the future. If you have any questions about virtual assets related legal issues, please feel free to contact us.