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THE RISE OF NEW HYBRID BANKING

CRYPTO-BANKS


The traditional banking system has, (for a long time), been developed on trust. The rise of Fintech companies and Crypto assets backed by distributed ledger technology, evermore is being perceived as a threat to the traditional payment systems and Financial Institutions, (FIs)


FIs must mandatorily comply with strict regulatory requirements and have been sceptical to open accounts for crypto exchanges and crypto wallet providers alike. In their perception, crypto assets pose an easy way for promoting Money Laundering, (ML) Terrorist Financing, (TF) and evading sanctions.


Smaller banks in Switzerland, Germany and Liechtenstein have started embracing crypto businesses and offering them support for conducting Initial Coin Offerings (ICOs) such as screening Investors and accepting payments for their services in Crypto Currencies.


Some of these smaller FIs have also started offering investor access to crypto exchanges, crypto tracker funds and custody services.


According to an article published in Bitcoininst - Fidor Bank, a German Banking Institution not only offers a euro bank account to Kraken, a US based crypto exchange, but also gives its German clients access to the US based Exchange.


The rise of new Crypto banks such as Crypto Custodian, Anchorage, have secured conditional approval for a national trust charter from the United States Office of the Comptroller of the Currency, making it the first national “Digital Asset Bank” in the US. This registration has created a fresh layer of legitimacy for Crypto assets.

In the UK Digivault became the first standalone crypto asset custodian to receive approval from the UK Financial Conduct Authority (FCA) to store crypto.


A spectrum of opportunities has appeared on the horizon of banking and finance. Customer interest is fast veering round Crypto assets. Despite inherent risks, Crypto assets are a vehicle with great prospects. They have the potential to outperform conventional banking products while offering greater efficiency, and, with it, more transparency.


Big banks, which have more than adequate resources, have been quick to foresee the potential of Crypto assets and have realised that prospects outweigh risks. The opportunity, when enveloped within a legal and regulatory framework, increases in its viability.


Traditional banks have now started partnering with crypto asset firms to create a new hybrid banking landscape.


Smaller FIs in the US have partnered with a crypto custody firm NYDIG to offer their customers lucrative services such as buy, hold, and sell Bitcoin through their existing bank accounts. This was due to the smaller banks lacking the capital to invest in technology to directly offer the services to the customers.


Big FIs have now realised the scope offered by the Crypto market. Many of these institutions are now interested to offer crypto asset related services such as custody, fund, and trading to their clients. The institutional investors of these traditional banks are looking for a safe way to access the crypto market. These institutions are seeking to enter joint ventures with other Crypto custody firms.


An example of this is, Komainu, which safeguards Crypto assets on behalf of Fis was launched last June as a joint venture between the Japanese banking group Nomura, Digital asset security firm Ledger and digital asset investment house Coinshares.


It is necessary for Crypto firms such as custodians and exchanges to register with the regulators which would provide them with legitimacy, and which would multiply the trust of investors and enable them to continue offering services.


A major transition is happening in the banking sector. Customers are expecting banks to provide innovation in investment products and in transaction services. How banks integrate crypto assets into their existing product portfolio and work alongside crypto custodians and exchanges, complying with conditions stipulated by the Regulator, is a factor that spells success.



About Lysis

There are only seven Crypto firms which are currently fully registered by the UK Financial Conduct Authority (FCA) to offer Cryptocurrency services. Most Crypto firms (90 of them) are operating under the Temporary Registration Regime.


Here at Lysis Financial, we have the expertise and resources to help you obtain full FCA Registration. We have historically aided firms, who have a Temporary Registration License to become fully registered. As part of this, we can:

  • Assist in the completion of the necessary forms, including ownership disclosure forms and FCA Approved Persons Forms;

  • Provide on-going advice on the FCA Regulated activities for which your firm will require regulatory permissions;

  • Provide details as to the broad FCA Regulatory obligations specific to crypto related activities;

  • Review and provide guidance as to governance, systems, and controls of your firm;

  • Review the FCA competency requirements for senior management and other staff, including the nominated officer (MLRO);

  • Help prepare a Regulatory Business Plan, where required;

  • Provide advice and support to senior management for meetings with the FCA; and

  • Project manage the Firm’s FCA application from start to finish.


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