Whither digital asset custody?
- Future of Finance
- Jan 24, 2024
- 3 min read
Updated: Jul 23
What is the event about?
The custodians, whose profession was once a byword for the least glamorous activity in the securities industry, will never enjoy the wealth and prestige of investment bankers, asset managers and private equity deal-makers. But independent custodians have earned from investors some recognition of their utility, thanks to the long and continuing sequence of losses inflicted on investors by the various heists and collapses that have characterised the cryptocurrency industry since Mt Gox fell over a decade ago. The non-bank and mostly non-independent custodians of cryptocurrency assets are now consolidating rapidly in a shrunken market bedevilled by operational shortcomings. Regulatory pressure on the sector has grown, shading even in some previously accommodating jurisdictions (notably the United States) into outright hostility. Likely winners from the process of consolidation are becoming visible, through mergers, acquisitions and partnerships designed to boost sales and activity in the cryptocurrency and Decentralised Finance (DeFi) industry, not least through greater inter-operability between siloed blockchain networks. Cryptocurrency custodians do also face competition from regulated banks, albeit limited so far in terms of numbers and asset classes, and it is a race for scale that even the successful consolidators are destined to lose. It is obvious now that regulated banks will in the long run dominate the servicing of institutional money flowing into digital assets. Institutional investors have made this preference abundantly clear, and so have regulators. Already the leading digital asset custody technology providers have adapted and are working more conspicuously with banks than cryptocurrency firms. However, it is equally clear that the banks are proceeding cautiously. The lack of remunerative opportunities is the greatest obstacle – the tokenisation of securities, funds, commodities and real estate and other privately managed assets is still struggling to achieve scale – but regulatory uncertainty is another. One sign of this is that those jurisdictions which offer a degree of certainty (such as, surprisingly, Germany) are having more success in encouraging activity. And the need for certainty to encourage investment and growth, as the contrasting consequences of eWpG in Germany and SAB 121 and the new Safeguarding Rule in the United States make plain, extends to digital asset custody itself. This webinar will cover these regulatory developments and other issues, all of which are also raised in the second edition of Future of Finance’s Digital Asset Custody Guide (DACG2), which can be accessed here. The event will open with a presentation that draws on Future of Finance proprietary data about licences, registrations and certifications secured by digital asset custodians to illustrate the changing structure and geographical compass of the digital asset custody industry – and what it means for the service providers and their customers. This will be followed by a discussion between the online audience and a panel of experts, moderated by Future Finance Co-founder Dominic Hobson.
Why attend?
Safe custody is rivalled only by on-chain digital money as a key that will unlock the vast potential of the digital asset markets. Once they know that their holdings of digital assets are safe, institutional investors and their asset management advisers will drive the digitisation of financial assets and the digitalisation of the supporting workflows and processes. That creates threats to existing service providers but also opportunities for them and new entrants.
Who should attend?
Anybody working in the securities services industry, whether at a bank or a financial market infrastructure, or in the non-bank cryptocurrency custody industry, and both retail and institutional investors and their portfolio management and asset safety advisers and service providers.
When is it happening?
At 14.00 London time on Wednesday 24 January 2024
What topics will be discussed?
At what pace are regulated custodian banks approaching the digital asset opportunity?
How important is custody to the unexpected success of Germany in tokenising and digitising issuance?
How large a factor is SAB 121 in deterring the engagement of American custodian banks in digital asset custody?
What does the proposed “safeguarding rule” introduced by revisions to the 1940 Investment Advisers Act mean for custodian banks?
What do registrations to provide custody services tell us about the evolving structure of the industry?
Why is it so hard to obtain a licence to provide custody services?
Why are digital asset custodians so enthusiastic about professional certifications?
Are custody markets, regulators and providers aligned on the ultimate destination?
Panellists
