More and more traditional banks have started announcing support for digital assets like Bitcoin’s price (BTC) continues to make headlines for record-breaking all-time highs. Even big banks like JPMorgan Chase, previously Bitcoin frowned, have taken a renewed interest in the cryptocurrency. Contrary to what Goldman Sachs said recently, JPMorgan’s strategists have noted that “the price of gold would suffer from a structural headwind in the coming years” because of the growth of Bitcoin.
While JPMorgan Chase is clearly taking a softer stance on Bitcoin, some leading banks are taking it a step further by offering customers digital asset custody services. For example, FV Bank, a Puerto Rico-based digital bank, announced on December 21 that it had received permission from the Puerto Rico Office of the Commissioner of Financial Institutions to provide custody services for all major cryptocurrencies, including Bitcoin and Ether (ETH), along with support for ERC-20 tokens.
Miles Paschini, CEO at FV Bank, told Cointelegraph that the bank will begin offering custody services integrated into its digital platform in early 2021. Both institutional and retail clients will then be able to open an account with fiat and digital asset balances. Paschini added:
“Banks are well positioned to provide safe depository and banking services to enable a seamless experience. Puerto Rico happens to be a mature financial services market that is well positioned to empower its licensed institutions to provide these services to international clients while adhering to the required Bank Secrecy Act and Anti Money Laundering requirements. “
According to Paschini, FV Bank account holders are given cryptocurrency deposit addresses for any digital asset they wish to hold in their accounts. The digital assets are managed in a secure and secured custody account linked to the user’s digital bank account. The services are accessible through online and mobile banking.
Nitin Agarwal, Chief Revenue Officer at FV Bank, added that in recent months there has been a high demand from the bank’s existing clients to invest in digital assets and keep them safe. As such, Agarwal noted that digital assets are proving to be attractive investments for international companies, institutional investors and retail clients alike: “I expect the convergence of these products to drive the bank’s growth in the coming years.”
Some major banks, including Standard Chartered, DBS Bank of Singapore and BBVA, have also recently added crypto services. In October of this year, DBS hinted at three new customer offers: cryptocurrency trading, custody, and a security token offering platform. Three months later, DBS has established its cryptocurrency exchange division known as the DBS Digital Exchange.
Following this, Standard Chartered Bank announced a partnership with United States-based investment firm Northern Trust provide institutional custody for Bitcoin from next year. Spanish bank BBVA too announced trials for its first commercial service for trading and custody of digital assets in early December. The new service is offered through BBVA Switzerland and makes it possible to manage Bitcoin transactions and deposits.
In addition, Swiss banks are preparing to offer digital assets through the Swiss Stock Exchange, also known as SIX, which recently launched a new program that will allow banks across Switzerland provide customers with access to digital asset-related products and services, scheduled to launch next year.
Banks that gamble a lot on crypto?
Wayne Trench, CEO of OSL, one of Asia’s leading digital asset platforms and member of BC Technology Group, told Cointelegraph that major players such as DBS, in addition to Fidelity Digital Assets and Standard Chartered, are just some of the big names that have unveiled digital asset custody solutions. . According to Trench, banks will continue to support digital assets in response to demand from traditional custodians’ clients:
“Demand hits a record high in 2020 and we’ve seen relatively conservative financial institutions start allocating their investments in digital assets. An example of this is MassMutual’s recent purchase of $ 100 million worth of Bitcoin. “
Trench added that there have also been significant regulatory breakthroughs, such as the Hong Kong Securities and Futures Commission, which allows Type 9 licensed asset managers to hold up to 10% of digital assets without additional conditions.
According to Paschini, digital assets and cryptocurrencies are a growing asset class in addition to a payment and settlement mechanism. As such, he noted that banks would do well to engage in digital assets as Bitcoin currently outperforms the stock market.
It’s also important to point out the growing interest of institutional investors in digital assets. Lately, this has not only caught the attention of major banks, but major hedge funds are also taking note. This week, Anthony Scaramucci’s multi-billion dollar hedge fund, SkyBridge Capital, filed a formal application with the US securities regulator to launch a new Bitcoin fund.
Compliance is more important than ever before
While it is revolutionary for banks and traditional financial institutions to add support for digital assets, the ever-changing compliance and regulatory challenges must also be considered. This has become especially true now that the Treasury’s Financial Crimes Enforcement Network, or FinCEN, announced a proposed rule change for virtual currency transactions with non-hosted wallets.
While the rule is currently a proposal, the change would require banks and money service companies to verify the identity of their customers when submitting reports for CVC transactions in excess of $ 10,000. In addition, data from CVC transactions in excess of $ 3,000 would be required when a counterparty uses an unhosted wallet or “otherwise covered” wallet, such as those at a financial institution not covered by the Bank Secrecy Act.
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 compliance should be a top priority:
“In light of the Treasury Department’s plans to implement regulations for self-hosted wallet transactions and FinCEN’s proposed change to the Travel Rule that lowers the reporting threshold from $ 3000 to $ 250, compliance events could triple by 2021. This will increase costs compliance for banks, stock exchanges and other financial institutions. “
Jefferies added that regulators have also suggested more extreme consequences, including fines and imprisonment, for those who fail to comply: “This increases the stakes for banks and others adding cryptocurrency services to their offerings for the first time.”
In addition, a CipherTrace investigation was conducted in December found it that only 22% of bankers and financial investigators are confident in detecting crypto-related payments on their networks, suggesting better risk detection is needed.
However, Paschini remains confident in FV Bank’s newly added support for digital assets. Paschini explained that the company is already subject to strict Know Your Customer and Anti-Money Laundering requirements, along with transaction reporting. Rather than regulation, he believes the main challenge for future banks will be adopting the right technical infrastructure and protocols.