____________

U.S. Banks and Crypto Custody: A Five-Step Guide for Starting Services

Share on linkedin
Share on twitter
Share on facebook

by Thomas Trépanier

Cryptocurrency and the traditional banking system can finally meet face-to-face. The OCC (Office of the Comptroller of the Currency) surprised the world of finance in late July with new guidance: nationally chartered U.S. banks have the green light to provide cryptocurrency custody. This clarification is good news for banks since it means a significant revenue stream has just opened up. The bad news? Most banks are nowhere ready to take advantage of this landmark development. 

Banks must fast-track their know-how to get in on the action. Fortunately, they don’t have to do it alone—they can join the Roxe Global Instant Settlement Network (Roxe) to quickly and cost-effectively expand their crypto capabilities. Roxe brings near-instant, lower-cost cross-border payment and settlement to banks and their customers. Built on a lightning-fast blockchain, Roxe Chain, Roxe provides banks with one-to-many connectivity that significantly streamlines communications with digital asset entities worldwide, reduces points of failure, and heightens security. 

Navigating New Possibilities

Thanks to this latest guidance from the OCC, banks have regulatory direction and an increased comfort level with crypto. They also have a financial incentive to dive in, as crypto continues to grow — the total cryptocurrency market cap stands at $335+ billion, according to the latest figures from CoinMarketCap

That’s significant value—and rising. By stating that U.S. banks can hold a cryptocurrency’s unique cryptographic keys, the OCC’s clarification turns what had previously been a threat to their business into an advantage. Banks get another boost from their long-standing reputations and entrenched customer bases.  

Opportunity is knocking for banks that want to move ahead with crypto custody. Planning to integrate with Roxe is one way to get a head start. Roxe facilitates asset transfers and settlement directly between banks, digital asset exchanges, central banks, payment companies, and exchanges. The network facilitates cross-border payments as well as deposits, withdrawals, and transfers between digital asset accounts for cross-exchange trading and payments.

Getting connected with Roxe is one major step for banks entering the crypto custody space. However, safeguarding cryptocurrency for retail and institutional clients requires a thorough understanding of many more complex topics, including: 

  • Digital assets
  • Blockchain
  • Cryptocurrency
  • Scalable custody services
  • Security
  • Regulatory issues

Banks need to know what they’re getting into before they get on board with digital asset custody. The ones who step up will be accepting a big responsibility, but early entrant status could provide a decisive edge as crypto keeps growing.

Five Steps to Move From Traditional Finance to Crypto Custodian

This “Crypto Custody” FAQ provides insights into some of the primary considerations for banks entering the space.

How will banks get a foothold when established crypto custodians like Coinbase already have a big head start?  

Exchanges like Coinbase have emerged as leaders. But their customers should welcome the competition from banks, especially if they can provide superior pricing. Also, as stated above, most banks have decades of proven dependability when it comes to custody—the trust they’ve earned can work to their advantage.

How do banks know which blockchain technology vendors and platforms to trust with their business?

Mastering blockchain technology is a daunting task, and banks must now decide whether to nurture in-house talent, bid high for experienced outsiders, or acquire systems infrastructure. Essential technologies to master include AML monitoring, cybersecurity, hot and cold wallets, trading, payments, staking, and transaction monitoring. 

Joining the right network will be essential. Roxe enables banks to settle with transparency, speed, and security. Roxe also makes digital asset transfer between institutions significantly more cost-effective. Informed customers will seek out a custodian that can settle their assets across execution platforms and maximize capital efficiency for their trading strategies—Roxe ensures this.

Which crypto custody customers will come to banks first?

Look for entities that require secure and efficient global cash transfer at the close of business each day, like foreign pension funds. More wealth management firms are diversifying their clients’ holdings with cryptocurrency, which makes them good candidates to gravitate to banks early on. 

Will experienced crypto professionals want to work at banks?

Very few banks have home-grown crypto talent. Frankly, high salaries and other perks will have to be on the table to attract the best personnel from fintech into the traditional banking sector.    

Acquisition, or acqui-hire, is the other foreseeable route: M&A activity may very well be on the rise soon. Industry observers expect that banks will start to get aggressive with acquiring established blockchain players. Keep in mind that the OCC letter has made many potential vendors into competitors, meaning that acquisition may be the only way to get their services.    

What are the costs of expanding into crypto custody?

Expect banks to weigh their risk tolerance with their customers’ readiness. Development from other regulators beyond the OCC will also affect banks’ preparedness to invest in crypto custody infrastructure. Several crypto custody applications are less costly than what banks must maintain for their legacy business. For example, Snowflake and Amazon Web Services (AWS) have the security and industrial-grade analytics to run these applications, which are not latency-sensitive or super high-throughput.

Joining Roxe can mitigate a wide range of connectivity costs, plus improve performance in crucial areas such as cross-border settlement.   

Crypto Comes of Age

Many tech-oriented industries cultivate a free-wheeling reputation early on, and cryptocurrency has been no exception. The OCC’s recent opinion is a signal that crypto is getting itself under control, creating a safer space with better regulation and the improved transparency necessary to attract investors.  

Banks have long known how to custody fiat currency, but they need help coming into crypto. Roxe is one way to make this unfamiliar path feel empowering. 

— Thomas Trepanier is Director of Business Development for Roxe at Apifiny.

© 2019-2020 Apifiny Asset Network Inc. All rights reserved