Bitcoin

Traditional banks offer custody of digital assets to comply with regulations

More traditional banks are announcing support for digital assets as Bitcoin (BTC) price continues to hit the headlines with all-time highs. Even large banks like JPMorgan Chase, which previously disapproved of Bitcoin, have shown interest in cryptocurrency again. Contrary to what Goldman Sachs recently stated, JPMorgan strategists have indicated that “the price of gold would face structural headwinds in the coming years due to the growth of Bitcoin”.

While JPMorgan Chase represents Bitcoin much more softly, Some leading banks go a step further by offering digital asset custody services to their customers. For example, Banco FV, a Puerto Rico-based digital bank, announced on December 21 that it had received permission from the office of the Financial Institutions Commissioner in Puerto Rico to provide custody services for all major cryptocurrencies. including Bitcoin and Ether (ETH) as well as support for ERC-20 tokens.

Miles Paschini, CEO of Banco FV, told Cointelegraph that the bank will offer custody services integrated into its digital platform from early 2021. Both institutional and private customers can then open an account with assets from property, plant and equipment and digital assets. Paschini added:

“Banks are well positioned to maintain safe custody and provide banking services to provide a seamless experience. Puerto Rico is a mature financial services market that is well positioned to authorize its licensed institutions to provide these services to international clients Compliance with the requirements of the Banking Secrecy Act and the anti-money laundering requirements. “

Traditional banks offer custody of digital assets to comply with regulations
Traditional banks offer custody of digital assets to comply with regulations

According to Paschini, account holders at Banco FV will receive crypto deposit addresses for every digital asset they want to keep in their accounts. Digital assets are managed in a secure depository that is linked to the user’s digital bank account. The services are accessed through online and mobile banking applications.

Nitin Agarwal, Chief Revenue Officer at FV Bank, added that there has been a great demand for safe investment and holding digital assets among the bank’s current clients over the past few months. As such, Agarwal commented on that Digital assets are proving to be attractive investments for international companies, institutional investors and private customers: “I expect the convergence of these products will drive the bank’s growth in the years to come.“.

Some big banks like Standard Chartered, DBS Bank of Singapore, and BBVA have also recently added cryptocurrency services. In October of this year DBS hinted at three new offerings for customers: cryptocurrency trading, custody and a platform for conducting security token offerings. Three months later, DBS has established its cryptocurrency exchange division known as DBS Digital Exchange.

Following this, Standard Chartered Bank announced a partnership with the US-based investment management company Northern Trust to ensure the institutional custody of Bitcoin from next year. Spanish bank BBVA also announced in early December that it was testing its first commercial digital asset negotiation and custody service. The new service is offered through BBVA Switzerland and enables the management of Bitcoin transactions and deposits.

Furthermore, Swiss banks are preparing to offer digital assets on the Swiss stock exchange, also known as SIX. The latter recently developed a new program with which banks throughout Switzerland can offer their customers access to related products and services with digital assets, which is scheduled to start next year.

Do banks bet heavily on cryptocurrencies?

Wayne Trench, CEO of OSL, one of the leading digital assets platforms in Asia and a member of BC Technology Group, told Cointelegraph that big companies like DBS, as well as companies like Fidelity Digital Assets and Standard Chartered are just a few of the big names that are Unveiled digital asset custody solutions. According to Trench, banks will continue to offer digital asset support due to customer demand for traditional custodians.::

“Demand is reaching an all-time high in 2020, and we’ve seen relatively conservative financial institutions begin investing in digital assets. An example of this is MassMutual’s recent $ 100 million purchase of Bitcoin.”

Trench added that there have also been significant regulatory developments, such as the Hong Kong Securities and Futures Commission, This allows asset managers with a Type 9 license to hold up to 10% of digital assets with no additional terms and conditions.

According to Paschini, digital assets and cryptocurrencies are a growing asset class as well as a payment and settlement mechanism. So, He noted that it would be wise for banks to get immersed in digital assets as Bitcoin is currently outperforming the stock market.

It’s also important to note the growing interest among institutional investors in digital assets. This has recently caught the attention of not only the big banks but the big hedge funds as well. Just this week, the billionaire hedge fund SkyBridge Capital run by Anthony Scaramucci filed a formal application with the US securities regulator to set up a new Bitcoin fund.

Legal compliance is becoming more important than ever

While it is revolutionary for banks and traditional financial institutions to add support for digital assets, constantly changing compliance and regulatory challenges also need to be addressed. This is particularly the case with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which has announced a proposed rule change for transactions in virtual currencies with unprotected purses.

While the rule is currently a proposal, the change would mean banks and money service providers would have to verify the identity of their customers while filing reports for convertible digital currency transactions that exceed $ 10,000. In addition, a record of transactions in convertible digital currencies in excess of US $ 3,000 would be required if a counterparty is using an unguarded portfolio or an “otherwise covered” portfolio, such as with a non-confidential financial institution. Banking.

John Jefferies, chief financial analyst at CipherTrace, a blockchain intelligence company, told Cointelegraph that these proposed rules could affect banks that support digital assets.Noting that regulatory compliance should be a top priority:

“Given rumors about the Treasury Department’s plans to enforce regulations on portfolio transactions with self-custody, and FinCEN’s proposed change to the travel rule that will lower the reporting threshold from $ 3,000 to $ 3,000 Triple in 2021. This will increase compliance costs for banks, exchanges, and other financial institutions. “

Jefferies added that regulators have also suggested more extreme effects, including fines and jail terms for those who fail to comply: “This increases the stakes for banks and others who are first adding cryptocurrency services to their offerings.“.

Furthermore, A CipherTrace survey conducted in December found that only 22% of financial bankers and researchers are confident of detecting payments related to cryptocurrency on their networks, indicating the need for better risk detection.

However, Paschini remains confident that Banco FV will support new digital assets. Paschini stated that the company is already subject to strict KYC and anti-money laundering regulations, as well as transaction reporting. He believes that the biggest challenge for banks is to adopt the right technical infrastructures and protocols.

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