According to a report by Commercial Times, multiple financial institutions, including private banks and online-only banks, have held talks with VASPs over the past year, preparing to apply for virtual asset custody pilot programs with the Financial Supervisory Commission (FSC). However, their applications were repeatedly rejected. The FSC cited "excessive warning accounts" as the reason, requiring banks to significantly reduce their warning account ratios before filing.
Only Four Banks Approved for Pilots; KGI Bank Leads
As of now, the FSC has approved four banks—Union Bank, KGI Bank, CTBC Bank, and Cathay United Bank—to trial virtual asset custody services, initially focusing on Bitcoin and Ethereum. KGI Bank officially launched the service on February 5, 2026, partnering with five VASPs: Atrix, BitoPro, HOYA BIT, XREX, and ZONE Wallet. The bank uses a fully offline cold wallet system combined with HSM-based hardware security modules to ensure asset isolation and became the first domestic virtual asset custody bank to secure an insurance policy. KGI Bank President Lin Su-chen emphasized the principles of "stability, security, and compliance." The combined maximum crypto exposure of the three approved banks is approximately $20 million (nearly NT$1.8 billion), with a six-month pilot period requiring complete operational reports covering internal controls, AML, and complaint handling.
Far Eastern Bank Handles 97% of Crypto Fiat Flows but Skips Custody
Far Eastern Bank revealed in October 2025 that it handles 97% of Taiwan's virtual asset trading fiat flows, making it the dominant bank for crypto fiat rails, with a leading market share in fiat trust services. Despite this huge crypto-related flow, the bank has not applied for the virtual asset custody pilot.
Warning Account Peak at 150,000, First Decline Amid AI Lock-Up Issues
FSC data shows that warning accounts at domestic banks surged from 66,000 in early 2022 to 150,000 in early 2024, with a record increase of over 30,000 in 2024 alone. After the implementation of a "monthly control" mechanism in January 2025, the growth was curbed. In September 2025, warning accounts posted their first monthly decline. FSC Chairman Peng Chin-lung credited the improvement to AI fraud-detection models deployed by banks. However, the AI models' over-sensitivity sparked backlash: many payroll accounts, tuition fee transfers, and mortgage payments were mistakenly locked, drawing public complaints. The FSC proposed four improvement directions: optimizing AI model accuracy, setting up a 24-hour unlock hotline, adopting risk-tiering models, and sharing cases via the Bankers Association for cross-bank collaboration.
Virtual Asset Law Pending; Warning Account Threshold Creates Dilemma
Taiwan's draft Virtual Asset Service Act has been submitted to the Executive Yuan for review, with legislation expected by the end of 2026. The law will provide a clear legal framework for stablecoin issuance, VASP regulations, and bank virtual asset businesses. In the interim, the FSC is using pilot programs to gradually open up, but the warning account threshold puts crypto-friendly banks in a bind: reduce crypto fiat services to lower warning accounts, or continue deep market engagement but miss out on new business opportunities. The answer may only come when the dedicated law takes effect.