custodian - Pwim.Net

US SEC and FINRA Issued Latest Custody Guidance on Digital Assets Securities

The United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a statement addressing regulatory issues regarding the custody of digital asset securities on 8 July.

The recent statement highlighted that any entity involved in the transactions with digital asset securities must register with the SEC as a broker-dealer, and broker-dealers are required to “safeguard customer assets and to keep customer assets separate from the firm’s assets” under the Customer Protection Rule.

It was noted that some broker-dealers engage in digital asset securities without custody functions. Such noncustodial activities do not raise the same level of concern as long as the activities are compliant with relevant securities laws, SRO rules, and other legal and regulatory requirements. An example of a non-custodial activity is a digital wallet, where an issuer settles the transaction between the buyer and the issuer. The broker-dealer only instructs the customer to pay the issuer directly and issuers to issue digital asset security to the customer directly.

The SEC recognized the custody of digital asset is exposed to fraud, theft, and the possibility of losing private keys. The regulators urged broker-dealer to comply with Rule 15c3-3, hold in possession, or control digital asset securities. Besides, regulators also raised concerns that the other party could have a copy of the private key and transfer the digital asset security without the consent of the broker-dealer. As a result, the broker-dealer might not be able to reverse or cancel mistaken or unauthorized transactions despite the private key is held by the custodian.

Government-Owned Swiss Bank to Provide Custodial Services for Cryptocurrencies

The government-owned Swiss bank, bank Basler Kantonalbank (BKB) is set to offer cryptocurrency custodial services as well as trading service, a landmark move in the crypto-centric nation. The project is a collaboration between a BKB subsidiary and Bank Cler, a Swiss Banking Group.

A Basler Kantonalbank spokesperson said:

“In the BKB Group, we are working to offer our clients a solution for the trading and deposit of selected cryptocurrencies. As an established regional (Basler Kantonalbank) and indeed national (Bank Cler) banking group, we wish to give our clients secure access to these new financial products.”

Following the approval by the US bank regulator, the US Office of the Comptroller of the Currency (OCC), allowing US banks to offer custody of digital currencies, the Swiss bank now ranks as one of the pioneers of the laudable move.

Increased Reawakening to the Prospects of Blockchain Technology

Financial institutions around the world are getting a positive reawakening to the potentials of blockchain technology when adopted and integrated into their business processes. The Bank of America in a bid to wedge its weight in the blockchain ecosystem announced job openings for blockchain veterans back in Q3 2019.

Besides the proliferation of such blockchain centric financial institutions such as the Silvergate Bank who delved into crypto lending services, multinational banks are forming strategic alliances in relation to blockchain technology. A typical example was seen when Deutsche Bank joined JP Morgan’s Blockchain Platform.

From use cases ranging from clearing and settlement, to trade finance, the obvious superiority of blockchain technology is being currently harnessed by financial institutions around the world.

To level the playing ground for all firms adopting blockchain technology, most country central banks are helping to create flexible regulations while many others including the Bank of France are experimenting with the development of government-backed digital currencies. In all, the mainstream adoption of blockchain technology in the financial service sector may be happen just in a matter of years

Top Four South Korean Banks Announce Plans to Provide Cryptocurrency Custodial Services

Two of South Korea’s top banks have recently announced that they were looking into providing cryptocurrency custodial services to their clients.

Introducing BTC Crypto Custodial Services

Woori and Shinhan Banks are following in the footsteps of Kookmin Bank, the largest commercial bank in South Korea. The financial monopoly had announced their intentions to offer Bitcoin (BTC) custody services at the beginning of this week, setting the tone for other commercial entities to follow. Along with the NH Nonghyup Bank in the mix, South Korea will see four of the country’s top five banks with cryptocurrency custodial services, enabling these institutions to generate profits through the management of their clients’ assets, whether it entails Bitcoin or fiat.

Together, Woori, Shinhan, Kookmin, and NH Nonghyup Bank hold more than $1.3 trillion in financial assets.

What Prompted Crypto Adoption?

With the Special Financial Transactions Information Act amending its policies to integrate cryptocurrency usage into a traditional financial system and the legislation set to be in effect for next year, Shinhan and Woori Bank immediately announced their plans to integrate crypto custodial services into their repertoire of services.

Initially, Shinhan had wanted to introduce cryptocurrency services back in 2017, but it was not cleared by South Korean regulators back then. The bank has come long ways and joined Kookmin Bank, who decided to partner strategically with coin exchange Cumberland Korea and Hashed, a global blockchain venture fund.

An update by Hashed indicated that the financial institutions were working on advancing the digital assets market in South Korea, pushing for fundamental technologies, such as blockchain and digital asset custodial services to be normalized.

Competition Among Countries Is Fierce

What South Korea seems to be lacking however is a regulatory framework built around cryptocurrency adoption. This concern revolving around the evolving financial industry was addressed by Park Seong-Jun, the head of the Dongguk University Blockchain Research Center. He said:

“Other countries are moving very quickly in this regard. But there is still no legal system set in place in South Korea, so progress is slower than expected. We are worried that we will lose our competitiveness.”

Fiat and Crypto Worlds Meet

With each country pushing to instill a regulatory framework to manage cryptocurrencies within a financial bank institution and to be the first to introduce a Central Bank Digital Currency (CBDC), Park is worried that that South Korea might be losing to its competition, namely China and USA. The two political and economic powerhouses are actively trying to be the first in the game to come up with an operating CBDC.

First CBDC Blockchain Platform

With the economic situation caught in a downhill fall due to the ongoing pandemic, traditional banks are struggling to stay afloat, which may explain why there has been a perceived increase of blockchain adoption among traditional banks, in the recent weeks.

On August 12, blockchain company Apollo Fintech has announced that they have finalized the blockchain national currency platform they have been actively working on for two years. This platform would enable Central Bank Digital Currencies to leverage it to operate.

The fintech company advocated that their blockchain-powered platform would enable users to make digital payments efficiently and in a secure way.

The blockchain platform is dubbed “National Payment Platform,” and is the first blockchain CBDC platform to be ready for digital assets issuance.

PayPal May Buy Digital Asset Custodian BitGo Following Crypto Market Entry

PayPal recently announced its integration of cryptocurrency buying, selling amd shopping into its global network, but the payments giant may not be done there with rumors flying that it is now looking to purchase digital asset custodian BitGo.

According to a report by Bloomberg on Oct.23, PayPal is now venturing further into the crypto space with the company reportedly in talks with digital assets custodian, BitGo Inc.

The report only cited anonymous sources who claimed that PayPal and BitGo were in discussions and likely to come to an agreement within the next few weeks. The report noted however that Paypal could decide to acquire a different custodian and “talks could still fall apart” with BitGo.

The news of PayPal’s potential acquisition is not sitting well with everyone. The official account of Thorchain (RUNE) expressed the company’s concerns on PayPal’s approah to decentralization via Twitter.

The Twitter post read:

“There goes wBTC. The majority of wrapped Bitcoin is custodied by BitGo. PayPal is not a good actor in this space. Position accordingly.”

PayPal Effect on Bitcoin Price

Although other factors are at play such as the US stimulus anticipation and the constant news of further institutional adoption of the flagship crypto Bitcoin—shortly after PayPal announced will launch its crypto payments next year, Bitcoin (BTC) surged past $13,000, after breaking its previous resistance level at $12,000 the day before. Bitcoin managed to hit a new high in 2020, and passed the $13,000 level for the first time since July 2019.

The Bitcoin price currently sits at $12,956 at the time of writing and continues to try to retest the $13,000 resistance. However, research from Glassnodes indicates that a sell-off correction is most likely fast approaching as 98% of BTC UTXOs are now in as state of profit.

Circle Taps BNY Mellon to Serve as Custodian for USDC Stablecoin Reserves

The Bank of New York Mellon Corporation, popularly known as BNY Mellon, has been selected to serve as the “primary custodian” for the reserve assets behind the USDC stablecoin, a cryptocurrency whose value is directly pegged to the U.S. dollar. Circle, a global crypto finance company, announced in a statement on Thursday.

The new partnership will assist in linking the traditional capital market with the digital asset market, Circle stated.

According to the report, both parties will collaborate to facilitate an exchange of expertise on issues regarding digital and traditional markets. Such issues include bridging traditional and digital capital markets, cash management for fiat and non-fiat payments, safekeeping of digital assets, investment management, and the exploration of digital cash for settlement purposes.

Roman Regelman, the Asset Servicing CEO and Head of Digital at BNY Mellon, talked about the development and said: “Our role as custodian of USDC reserves supports the broader market and provides value to clients, based on our role at the intersection of trust and innovation.”

Meanwhile, Jeremy Allaire, the co-Founder, Chairman and CEO of Circle, also commented on the new collaboration and stated that the partnership with BNY will enable their firm to “build bridges between traditional financial services and emerging digital asset markets, without sacrificing trust.”

By selecting the biggest custodian bank, Circle gets credibility, builds trust in its stablecoin brand, and positions its flagship product as a quality stablecoin. Likewise, partnership with the USDC stablecoin also gives BNY bank significant credibility and bolsters its brand among crypto clients.

Mellon bank is the world’s largest conventional custodian, with over $46 trillion in assets under custody. USDC is the second-largest stablecoin with almost a $52 billion market cap.

Expanding Access to Digital Assets to Institutions

In February, BNY Mellon announced developing a digital asset custody platform to allow institutional customers to gain crypto exposure. With the creation of the digital asset custody platform, the bank aims to enable institutions to store cryptocurrencies in BNY Mellon crypto wallets.

Mellon stated that the new digital asset custody service would gradually increase and integrate a variety of tokenized traditional and digital assets.

The new service has made the bank become the first to enter the global digital custody market, with intentions to expand worldwide based on demand, beginning with the U.S.

In the U.S., Mellon bank is the oldest banking organization founded at the end of the 18th century and is still running its business to date.

In early 2021, Mellon first entered into the crypto space when it announced its plans to begin financing Bitcoin and other digital currencies to its institutional clients, citing increased demand. Since then, the bank has expanded its crypto-related activities. In July last year, Grayscale Investments selected BNY Mellon as an asset servicing provider for Grayscale Bitcoin Trust.