Crypto Custodian Services to Launch in Hong Kong
A prominent South East Asia-based fund management company is considering the launch of a cryptocurrency custodial service targeting regional institutional investors.
The Demand for Cryptocurrency Custodians
As reported by South China Morning Post on July 22, 2018, the Singapore-based Fusang Investment Office is planning to offer cryptocurrency holding services after clients expressed rising interest in digital assets investing.
The service, aptly-named Fusang Vault, is expected to launch in Q4 2018 with an office in Hong Kong, a crypto-friendly financial hub situated in China but with` a distinctly different legal system from the Mainland.
In addition to storage facilities, the Vault will provide audit services for its clients, noted the company’s CEO Henry Chong.
Chong stated that digital assets are financially similar to bonds, a significant feature of the traditional markets, besides acknowledging the increasing need of a trusted third-party service to cater towards the ever-increasing demand for investing in cryptocurrencies.
Insurance Companies in Demand
Chong believes cryptocurrency custodial services are key in the burgeoning industry in the absence of strict regulations of digital asset ownership and commented,
“Digital assets are akin to bearer bonds, whereby whoever that is holding the security is presumed to be the owner and there is no registration of ownership information of the security. Hence, the way we keep digital asset [sic] secured is of paramount importance.”
Addressing insurance concerns, Chong stated that Fusang Vault is committed to safeguarding investor funds and is working with several insurance companies in this regard. However, no additional details of the upcoming custodial service were revealed in the report.
As reported by CryptoSlate on July 21, 2018, insurance firms are quickly catching up to the cryptocurrency demand and offering their services at significantly higher markups for companies in the sector.
The Fusang Investment Office is licensed by the Securities and Future Commission of Hong Kong, a body which previously expressed distrust of the cryptocurrency industry. While no formal ban on cryptocurrencies has been enforced yet, Hong Kong remains cautious.
Interestingly, Fusang’s parent company, Portcullis Trust, was under legal scrutiny in 2013 after reports that the company helped clients evade tax authorities. Portcullis was named in the International Consortium of Investigative Journalists (ICIJ) offshore leaks database that year.
Custodians Setting Own Legal Frameworks
Institutional clients and hedge funds are increasingly seeking custodial options for cryptocurrencies, as existing exchange frameworks have repeatedly failed to provide high-levels of asset security.
Cryptocurrency businesses are ideating a move in this regard, with one of the world’s largest digital asset exchanges, Coinbase, launching the “Custody” service in July 2018. The company is a member of the U.S. Financial Industry Regulatory Authority (FINRA), and investors need to hold a minimum of $10 million in cryptocurrencies for using Custody.
Meanwhile, Jolyon Ellwood-Russell, a partner at law firm Simmons & Simmons, believes investors are left to the terms and conditions laid down by private entities in the absence of a unified global framework, questioning:
“In what capacity are the custodians holding the assets? Are they holding them as a bailment, that is, a trust, so the assets are outside the estate of the custodian on an insolvency.”
He added that “a lot of legal issues” remain unaccounted for in custodial documentation for cryptocurrencies.