- B Vrettos and M Bacina
Banks rival for custody of digital asset keys
United Overseas Bank (UOB), Singapore’s third largest bank, appears to be making the move into the cryptocurrency space.
After advertising for a new role of “VP - custody security administrator” UOB seems to be exploring avenues to secure digital assets and prevent assets being lost due to misplaced keys. The role entails setting up and maintaining centralised key management which includes harnessing Hardware Security Modules. By exploring hardware devices to safeguard user's cryptographic keys, UOB is delving into the urgent need for adequate custodians to secure the increasing volume of crypto assets.
Singapore banks are competing in the race to develop robust custody solutions as DBS, (Singapore's largest bank) recently also announced a 'DBS Digital Custody'.
The solution was designed to support the DBS Digital Exchange as no assets are proposed to be held on the exchange itself. The DBS Digital Exchange is still in the process of gaining regulatory approvals.
Regulators in Singapore are not the only ones grappling with what form digital asset custodians may take. Recently the US has had a flurry of activity considering the custody of digital assets. In late October the Wyoming Division of Banking issued a ‘no-action letter’ for wealth management service provider Two Ocean Trust to provide:
custodial services for both digital and traditional assets under Wyoming law. Additionally, the Division [found] that Two Ocean may serve as a “qualified custodian”.
This determination was largely based on the definition of a "bank" and because the Two Ocean Trust exercised genuine fiduciary powers as a substantial portion of its business. Two Ocean Trust describes itself as the:
first financial institution in the US to offer a comprehensive and frictionless digital asset wealth management platform
In quick succession, the SEC issued a public statement including that:
determining who qualifies as a qualified custodian is a complicated, and facts and circumstances based, analysis given the critical role qualified custodians play within this framework by safeguarding the client assets entrusted to investment advisers.
The statement called for consultation on the so-called "Custody Rule" and how it engages in the US with digital assets, potentially hinting that their existing views may alter depending on the submissions.
As regulators explore how and why digital asset custody may pose unique challenges, banks continue to race for the tick of approval to secure private keys. We can only hope that Australia's custody regulatory guides will be updated with practical guidance for financial services business who wish to offer digital asset custody under the financial services licensing framework.