According to the Commercial Times , several financial institutions, including private banks and pure online banks, have completed negotiations with VASP (Virtual Asset Provider) operators in the past year and were preparing to submit applications to the Financial Supervisory Commission for a pilot program of virtual asset custody business, but have been rejected one after another.
The Financial Supervisory Commission (FSC) cited "too many alert accounts" as the reason. The regulator requires these banks to significantly reduce the number of alert accounts before their applications can be approved.
Currently, only four banks have been approved to participate in the pilot program.
To date, the Financial Supervisory Commission has approved three banks—Union Bank, KGI Bank, and CTBC Bank—to officially pilot virtual asset custody services. Cathay United Bank has also been approved to join, with the initial focus on the two major assets, Bitcoin (BTC) and Ethereum (ETH).
KGI Bank, which was the first to announce its launch on February 5, 2026, became the focus of the industry. KGI partnered with five VASP providers: Atrix, BitoPro, HOYA BIT, XREX, and ZONE Wallet, to transfer a portion of their virtual assets to cold wallets set up by KGI for safekeeping.
KGI's custody architecture employs fully offline cold wallet technology, combined with HSM (Hardware Security Module)-based cold storage devices, ensuring assets are isolated both physically and online. Furthermore, KGI became the first financial institution in Taiwan's virtual asset custody banking sector to complete insurance coverage, pioneering the introduction of international insurance mechanisms.
KGI Bank General Manager Lin Su-chen emphasized that the bank will promote its virtual asset custody business based on the core principles of "stability, security, and compliance".
The three approved banks have a combined maximum exposure to crypto assets of approximately US$20 million (nearly NT$1.8 billion). The trial period is six months, during which they are required to submit a complete operational report to the Financial Supervisory Commission, covering aspects such as internal control, anti-money laundering, and customer complaint handling.
Far Eastern Bank handled 97% of the cash flow.
In October 2025, Far Eastern Bank publicly stated that it handles 97% of the virtual asset transaction flows in Taiwan, making it the dominant bank for virtual asset deposits and withdrawals. In the virtual asset "fiat currency trust" market, Far Eastern Bank's market share is far ahead. Despite possessing such a massive volume of crypto transaction services, Far Eastern Bank has yet to participate in the pilot program for virtual asset custody services.
We can surmise the structural contradiction here: because fraud groups prefer to use cryptocurrencies for money laundering and fraud, the larger a bank's business volume in the crypto, the higher the risk of being used by fraud groups to open nominee accounts, and the more difficult it is to reduce the number of alert accounts. In other words, the more actively a bank serves the crypto industry, the more difficult it is to meet the "alert account threshold" set by the Financial Supervisory Commission.
The number of alerted accounts has reached 150,000, marking the first negative growth since the peak.
According to statistics from the Financial Supervisory Commission, the number of warning accounts in domestic banks surged from 66,000 at the beginning of 2022 to 150,000 at the beginning of 2024, more than doubling in two years. In 2024 alone, the number of warning accounts increased by more than 30,000, setting a historical record.
However, with the Financial Supervisory Commission implementing the "monthly control" mechanism starting in January 2025, banks will be placed on the watch list if the proportion of warning accounts exceeds the proportion of deposit accounts or the number of new warning accounts exceeds the industry average. The growth of warning accounts has finally been brought under control.
In September 2025, the number of alerted accounts saw its first negative growth, which Financial Supervisory Commission Chairman Peng Chin-lung attributed to the effectiveness of banks implementing AI-based fraud prevention models. However, the oversensitivity of AI has also caused new problems. A large number of salary transfers, tuition fees, and mortgage payments were mistakenly locked, leading to rising public discontent.
The Financial Supervisory Commission (FSC) has proposed four areas for improvement: optimizing the accuracy of AI models, setting up a 24-hour unlocking hotline, introducing a risk grading model, and forming cross-bank joint defense through sharing cases with banking associations.
The next step in Taiwan's virtual asset regulation
Currently, the draft of Taiwan's Virtual Asset Services Act has been submitted to the Executive Yuan for review, and legislation is expected to be completed by the end of 2026. At that time, there will be clearer legal grounds for issues including stablecoin issuance, VASP (Virtual Asset Service Provider) operator regulations, and bank virtual asset business.
During the transition period before the special law is implemented, the Financial Supervisory Commission (FSC) is gradually opening up participation to banks through a "pilot program." However, the setting of the "alert account threshold" has put some banks that are actively embracing the crypto industry in a dilemma. Should they reduce crypto payment services to lower the number of alert accounts, or continue to cultivate the market but be excluded from new business?
The answer to this difficult problem may only be found after the special law is formally implemented and the regulatory framework is further improved.
