The Rising Competition in Crypto Custody Services
Wall Street's race to provide custody services for the trillion-dollar digital asset market is intensifying. Banks and financial institutions recognize the profit potential in this sector, especially after high-profile collapses like FTX underscored the need for secure third-party custody solutions.
Key developments include:
- Citi Group evaluating partnerships with Swiss digital asset custodian Metaco Inc.
- French Société Générale securing regulatory approval for digital asset storage services in France.
- UK's Schroders actively searching for a crypto custodian.
Anatoly Crachilov, CEO of Nickel Digital Asset Management, observes: "Investors now prioritize segregated custody after learning hard lessons from centralized exchange failures. Separating custody from trading is critical for asset protection."
Regulatory Uncertainty: The Primary Roadblock
While demand grows, inconsistent global regulations create operational complexities:
- Nasdaq paused its crypto custody plans, citing "uncertain regulatory landscapes" and capital requirements.
- SEC rules (March 2023) and upcoming Basel Committee standards impose heavier capital burdens on regulated custodians.
- U.S. banking crises (Silicon Valley Bank, Signature Bank) exacerbated regulatory scrutiny.
Michael Shaulov of Fireblocks notes: "Higher compliance costs deter major institutions from entering this space prematurely."
Clarisse Hagège, Dfns CEO, adds: "Regulatory complexity inhibits new entrants and challenges existing players—especially in the U.S., where enforcement actions substitute for clear rules."
Strategic Workarounds: Risk Isolation
Some institutions navigate regulations by:
- Creating subsidiaries (e.g., Standard Chartered’s Zodia Custody) with lighter capital requirements.
- Separating trading/clearing functions per international standards (FSB, IOSCO).
- Continuing R&D quietly—as State Street and Nasdaq are doing—pending regulatory clarity.
Matthew Homer of Standard Custody & Trust advises: "The challenge isn’t demand but timing. Firms must build now for when regulations mature."
FAQ: Crypto Custody Concerns
Q: Why is crypto custody gaining Wall Street’s attention?
A: Post-FTX, institutional demand for secure asset storage has surged, creating lucrative opportunities.
Q: What’s delaying wider adoption?
A: Uneven global regulations and high compliance costs discourage full-scale entry.
Q: How are banks mitigating risks?
A: Via subsidiaries and functional segregation to meet evolving standards.
Q: Will U.S. regulations improve?
A: Experts anticipate clearer frameworks as policymakers address crypto’s systemic role.
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