Sooner or later the custody market will be cornered by banking sector incumbents.

by Edmund Yong

[Back to Part 2]

Regulated custodial services will arguably be the main catalyst for mainstream adoption of digital assets. For someone new to crypto, the user experience for self-creation of a wallet is daunting, unfriendly, and risky – it can seem like opening a bank account without any safeguards of a bank account! Therefore, most investors will start their journey in a centralised digital asset exchange (DAX), but the industry has been spooked by so many security hacks. Institutional investors also prefer a discreet venue with more privacy, trust, and legal assurances.

Digital asset custodians (DAC) are the missing link to this new crypto economy. It will connect the two parallel financial worlds of conventional and digital assets; and open a whole new bridge for portfolio management, asset allocation, corporate treasury, estate planning and so forth.

Who are those likely to become DAC applicants?

If we go by recent global experience, they are the traditional banks themselves! This is because the safe deposit box has become virtual.

Perhaps the biggest and most direct impetus is from the Office of the Comptroller of the Currency (OCC) in the USA which has authorised federally chartered banks to custody digital assets. In its official statement last year [July 22, 2020]:

“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers.” This approval “applies to national banks and federal savings associations of all sizes.” Their rationale being: “From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today.” [1]

This is growing into a matter of national interest. The South Korea government (Fourth Industrial Revolution Commission under Presidential Office) recognized the strategic need and sovereignty to have homegrown specialist custody providers: “Participants in the traditional capital market such as securities firms and banks should develop and introduce domestic custody solutions to handle crypto assets so that the Korean crypto-asset custody market will not depend on foreign countries.” [2]

Banks operating as DAC are rapidly emerging from all corners of the globe:

  • Fidelity, one of the first Wall Street giants to venture into crypto (by mining Ether in 2016), started its “incredibly successful” custodial business in early 2019 and is expanding to Asia [3].
  • Nomura, another early mover, launched a custodial solution Komainu in 2018 along with wallet manufacturer Ledger that is regulated by the Jersey Financial Services Commission.
  • Goldman Sachs circulated a Request for Information (RFI) to a well-known custody player and will enter the market “soon” according to Coindesk [4], after a similar announcement by JP Morgan first reported by The Block [5].
  • BNY Mellon, the world’s largest custodian bank with US$41 trillion in assets, announced a new digital custody unit, sparking an all-time-high bitcoin rally during CNY this year.
  • Switzerland is leading the pack in the continent. Both brick-and-mortar banks like Basler Kantonalbank(BKB) and neobanks like SEBA, which teamed up with private banker Julius Baer, and Sygnum are all going crypto.
  • Spain’s second largest bank, BBVA, founded in 1857 with over 80 million customers in 30 countries, is offering custody services via its Swiss subsidiary. Russia’s third largest bank, Gazprombank took a similar approach and is regulated by Switzerland’s FINMA.
  • France’s BNP Paribas, the world’s 8th largest bank, partnered with Curv for development of custody solutions; Curv is reportedly being acquired by Paypal after the latter’s failed bid on BitGo [6]. Another wallet provider Conio was acquired by Italy’s largest insurance group Banca Generali to launch a custody service this year.
  • Standard Chartered announced a partnership with US-based Northern Trust, established in 1889, to offer institutional-grade custody in 2021 called Zodia. Dutch banking giant ING is currently conducting product trials [7].
  • South Korea’s oldest bank, Shinhan invested in Korea Digital Asset Trust (KDAC), a custody consortium launched by local exchange Korbit [8]. Four of the nation’s top five banks are already poised to offer crypto services [9].
  • Thailand’s oldest bank, Siam Commercial invested in the Series C (led by Singapore’s GIC sovereign fund) of Anchorage, the first blockchain firm to receive a federal banking charter from the U.S. regulator OCC to operate as a trust institution.
  • Southeast Asia’s largest bank by asset size, DBS Singapore announced custody plans on its website, after receiving in-principle approval by the Monetary Authority of Singapore to become a DAX recognised market operator [10].

Where do normal trust companies go from here?

If a trust company currently offering private or corporate trusteeships wants to expand to digital assets in Malaysia, they will have to be registered as a DAC. Though with custody being integrated with other financial services, ‘pure play’ operators could lose out to those providers with direct access to depositors (as seen above). Furthermore, the initial entry point for most clients will be through onramps like a DAX that offers adjacent services as a DAC.

Some regulatory regimes allow self-custody without necessarily going through a third-party DAC. For instance, Hong Kong’s Securities and Futures Commission allows Type 9 licenced Virtual Asset Fund Managers to hold fund managed assets in self-custody, “provided that there are reasonable endeavours to acquire and maintain adequate insurance and specific disclosure of the existence and risks involved” [11]. Indeed, it is possible for local fund managers to apply for DAC themselves since there is no prohibition as such under the Guidelines of Digital Assets (GoDA).

Although many trust companies also offer value-added services such as fund administration (e.g. for collective investment schemes) and tax reporting, they will be well-served to address the two Achilles heels of the local DAC scene: the availability of technology (rationale for Paras 23.05 and 23.06 of GoDA) and insurance coverage – which brings us to the fourth and final instalment of this article series. Those who do will stand in good stead vis-à-vis other applicants.

[Read Part 4]









[8] 신한은행, ‘디지털 자산’ 사업 진출 | 연합뉴스 (



[11] HK Securities and Futures Commission (1 Nov 2018): Regulatory Standards for Licensed Corporations Managing Virtual Asset Portfolios