The Chairman of the Financial Supervisory Commission (FSC), Peng Chun-lung, announced in a recent press conference that Taiwan will open up the custody business of virtual assets to banks and securities firms, in order to facilitate the transformation of traditional finance. This move is part of the FSC’s five major fintech strategies, which also include promoting the tokenization of real-world assets (RWA), relaxing financial business trials, and restarting pure online insurance applications.
Open Banking Custody of Cryptocurrencies: Implications
Potential Impact on Cryptocurrency Operators
FSC has established an RWA group
Other Four Strategies
During a recent press conference, FSC Chairman Peng Chun-lung announced the five major strategies for the development of fintech. Among them, he mentioned the exploration of fintech development opportunities to facilitate the transformation of traditional finance. This includes planning to allow banks to conduct virtual asset custody business and promoting the tokenization of real-world assets (RWA).
Last month, Peng Chun-lung announced that Taiwan will gradually regulate cryptocurrencies in four phases, aiming to establish a cryptocurrency-specific law. It is expected that the legislation will be submitted to the Legislative Yuan for review by June next year. Associate Professor Yang Yueh-ping from the College of Law at National Taiwan University has suggested that the law should clearly stipulate that traditional financial institutions can engage in virtual asset businesses, such as custody and brokerage services, providing services such as proxy buying, wealth management, and order placement for customers.
During the press conference, Peng Chun-lung stated that this announcement further opens the door for traditional financial institutions to enter the cryptocurrency industry, following the establishment of the RWA tokenization group in mid-June.
Director-General of the Banking Bureau, Chuang Hsiu-yuan, has pointed out that there are two main methods for virtual asset custody: storing customers’ private keys in physical safes or using algorithms to safeguard private keys. The choice of method will depend on the legislation, but regardless of the method chosen, it presents new business opportunities for banks.
In addition, the custody of virtual assets also involves clear regulatory guidelines regarding its legal status, including whether it should be treated as securities or commodities, and how to account for them in financial statements. If accounting standards follow the current Basel Accords, banks will require relatively higher capital reserves when holding non-stable cryptocurrencies such as Bitcoin, increasing the capital pressure on financial institutions. However, despite facing this challenge, many traditional financial institutions still have a strong interest in custody services for virtual assets. Some financial institutions have already proposed ideas in financial technology innovation supervision clinics and related guidance meetings.
Furthermore, it needs further legislation to determine which customer segments the custody service will serve. Will it be limited to institutional clients or also open to ordinary consumers? If individuals can entrust their cryptocurrencies to banks for custody, similar to traditional bank safe deposit boxes or account services, it is expected to provide a more formal and regulated platform, which will benefit the legitimacy and credibility of the entire cryptocurrency industry.
Therefore, if the FSC allows banks to engage in virtual asset custody, it will not only promote financial transformation but also enhance the legal compliance level of the entire cryptocurrency industry, which is beneficial for its long-term development.
However, traditional financial institutions entering the virtual asset market will inevitably have an impact on existing cryptocurrency operators. Hsiao Hui-tsung, Deputy Director-General of the Virtual Asset Platform and Trading Business Association, believes that there may be three scenarios of competition between traditional finance and cryptocurrency startups in the future:
1. Some cryptocurrency startups may be acquired by traditional financial institutions.
2. Similar to PayPal or WeChat Pay, some cryptocurrency startups may develop independently as platforms that operate independently of traditional banks.
3. Some may form upstream and downstream cooperative relationships with traditional banks.
Wen Hung-chun, Deputy Director-General of the Taiwan FinTech Association, also stated that when formulating the cryptocurrency-specific law, consideration should be given to opening up certain financial businesses and providing more development opportunities for Virtual Asset Service Providers (VASP).
Dai Sung-chih, Deputy General Manager of the Digital Finance Business Group at Far Eastern International Bank, stated that VASP operators still have advantages in certain areas, and cooperation between traditional financial institutions and VASP will contribute to the formation of a more complete virtual asset ecosystem.
Regarding the promotion of RWA tokenization, the FSC announced on June 13 that it has established the “RWA Tokenization Group” in collaboration with Taiwan Depository & Clearing Corporation and six financial institutions, including Taishin Bank, Taipei Fubon Bank, Cathay United Bank, Cathay Securities, Cathay Asset Management, and Yuanta Financial Holding. The group will prioritize the tokenization of bonds and funds and aims to allow participating financial institutions to conduct business trials or experiments, enabling investors to learn blockchain transactions starting from RWA and then transition to virtual assets.
Hu Tse-hua, Director-General of the FSC’s Comprehensive Planning Department, stated that the RWA Tokenization Group will hold meetings every three to four weeks to discuss tokenization methods, as well as research and analyze asset custody, transactions, and other related matters. The ultimate goal is for participating financial institutions to propose conceptual verifications (Proof of Concept, POC) and apply for business trials or innovative experiments.
Other development strategies proposed by Peng Chun-lung include:
1. Expanding room for error: Peng Chun-lung stated that financial business trials will be relaxed to promote a “light sandbox” approach, expanding the scope and intensity of innovation experiments. Guidelines from associations and surrounding units, administrative rules issued by the FSC, and interpretive letters will be relaxed first, but the existing sandbox regulations will not be abandoned. Research has been outsourced to address the weaknesses of the current sandbox, especially the “landing mechanism” after successful experiments. In addition, the FSC has representative offices in London and New York and will actively invite international fintech teams to come to Taiwan.
2. Encouraging group cooperation and concentrating limited resources: Banks, securities firms, insurance companies, and other financial institutions will grant patent licenses to other institutions. It is hoped that companies will establish “fintech cooperation alliances” or “innovation funds” to collectively develop financial innovation technologies, rather than operating independently.
3. Supporting the development of pure online finance and restarting pure online insurance applications: Peng Chun-lung stated that application conditions will be adjusted to provide greater flexibility by removing insufficient incentives and excessive restrictions. For example, the restrictions on pure online insurance not being able to handle savings-type policies will be considered for relaxation. In addition, the allocation of equity between the financial industry and the fintech industry will be rethought, increasing support for online finance. A new plan will be proposed by the end of this year.
4. Leading fintech comprehensively: Striving to establish a Financial Market Development and Innovation Division and establishing a priority mechanism for reviewing inclusive financial innovation and procedures.
Related Reports:
FSC Establishes RWA Group! Collaborating with Six Banks in Taiwan (Taishin Bank, Taipei Fubon Bank, Cathay United Bank, etc.) for Bond and Fund Tokenization Ahead
Taiwanese People’s Commissioned Purchase of Bitcoin Spot ETF Is Coming Soon! FSC Securities and Futures Bureau: To Be Opened Soon
New FSC Chairman Peng Chun-lung: Cryptocurrency-specific law to be proposed by the first half of 2025, with a transition period relying on association self-regulation.