Standard Chartered is exploring a crypto custody offering after concluding there is need for ‘trusted’ providers to enter the digital asset space.
Institutional investors remain hesitant to participate in the cryptocurrency markets at present owing to a lack of traditional infrastructure and established custody offerings with activity mostly limited to crypto-specific hedge funds and a handful of family offices.
While some custodians such as Northern Trust, Nomura and Fidelity have discussed potential crypto servicing offerings, most asset servicing firms have remained coy about their involvement.
According to Standard Chartered’s global head of securities services, Margaret Harwood-Jones, the custodian has seen a need to begin exploring its own digital asset offerings.
“We are looking at both custody of crypto assets and the digitisation of analogue assets to create a more reliable and trusted investment environment to potential investors,” she told The TRADE Crypto’s sister publication, Global Custodian.
“It’s not up to us to tell clients where they should or should not invest, that is not the role of the custodian, but if they say it’s something they are interested in and they ask if we can help them, then being an innovative bank in the 21st Century we want to say ‘yes, we can offer a digitalised solution around these investment opportunities and one in which you can trust’.
“The market sees institutional investors staying on the sidelines as they are not sure about this as an asset class and whether they can trust the new providers in this space. So a bank that is reputable, reliable and can bring trust into the equation has a role in terms of bringing this as an asset class a little bit more centre stage.”
Harwood-Jones added that the bank is in “a live dialogue” with an asset manager in Singapore who is running funds of crypto assets which, because of the nature of the assets, they have struggled to market.
The comments about an established and trusted provider opening up the space echo what The TRADE Crypto has previously written about hedge funds and asset managers shying away from the cryptocurrency space.
For example, 40 Act funds in the US are required by regulation to maintain their securities and other investments with certain types of custodians designed to assure the safety of the fund’s assets.
The options available for the safekeeping of cryptocurrencies take two forms, self-custody and independent custody. The former involves hot and cold storage wallets – whereby the assets are stored online and offline, respectively – while the latter could be provided by a coin exchange or a traditional custodian.
Cryptocurrency trading platforms such as Coinbase, BitGo and itBit offer custody services; however, the entrance of traditional custodians into the space will stand to ease concerns from the largest institutional investors.
Alongside exploring cryptocurrency custody, Harwood-Jones explained that Standard Chartered is also looking into the tokenisation of existing products and new assets which are currently untradable.
During Sibos 2018 in Sydney, tokenisation was one of the biggest topics among securities services participants who are realising the potential of fractional ownership of assets on blockchain technology.
Numerous sources have suggested that artwork, diamonds and wine could all become tradable in a new tokenised financial ecosystem.
“There are a lot of assets that are not very tradable and not very liquid, because by their nature they are ‘old world’ assets, real estate for example,” added Harwood-Jones. “If you can create them in a digitised form, then in terms of marketability and tradability they move to a very different league.
“We are working with the financial markets business at the bank on another such opportunity where they have structured finance products which we are turning into digitalised form to allow for more effective trading around those instruments.”