BNY Mellon’s custody chief on how to serve crypto clients when ‘there isn’t a rulebook’

BNY Mellon’s expansion into a crypto custodian is being fueled by high customer demand, according to Caroline Butler, chief executive of Custody Services.

“You’ve seen the demand for this asset class and you’ve seen it become more mainstream,” she said financial news at this year’s Sibos.

“But this trusted provider remains essential for our institutional clients to truly scale their investments because they need to ensure their assets are protected and kept safe.”

The world’s largest custodian announced on Oct. 11 that it will hold crypto on behalf of its institutional clients.

When trading securities, the actual stock, bond or contract is not held by the investor. Instead, firms rely on banks like BNY Mellon to hold the assets, where they handle settlement and compliance on behalf of the investing institution.

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Due to the regulation and newness of crypto, no major custodian has offered these services to date.

“That was the biggest demand they had: to get us to apply the best guard rails, but also to take that risk and operational burden off them,” Butler said.

In a survey of 271 institutional investors conducted by BNY Mellon, 70% of firms said they would further increase their exposure to crypto if they outsourced custody and execution services to a highly rated financial institution.

Butler said BNY, as custodian, will hold the private keys – the “password” that proves ownership for its customers.

“Like the traditional space, where it’s about control and ownership, but with private keys. When a client goes to an exchange and executes, we create the private keys on the blockchain for them.”

For the most part, institutional investors do not trade the coin itself, but have relied on derivatives when looking to invest in the asset class.

For those who “handle” the coins, they have employed specialized crypto firms for custody services. But institutions are hungry for a trusted name to custodian their coins, with 63% saying they would accept longer settlement times for crypto trades if custodial services came from a traditional institution.

The acceptance of crypto by BNY Mellon, America’s oldest bank founded by First Treasury Secretary Alexander Hamilton, is another boost in the arm for an asset class amid a downturn.

While crypto firms targeting retail clients have had to scale back or freeze their expansion, institutional interest in digital assets remains high. A majority of respondents said they are likely to move forward with their crypto plans despite the crypto winter.

Butler said that BNY Mellon’s crypto custodial services will be for its US customers only for now and will initially be available to a select few.

“We’re going to be very measured. We apply institutional quality standards to the new offering; very important for an asset class where there is no rulebook.”

“I think we will create more credibility in the sense that we are bringing these elevated standards to a market where there is no uniform regulation,” she added.

BNY Mellon isn’t the only company announcing crypto custody services. The Swiss stock exchange SIX also said on Oct. 11 that it is ready to hold crypto for its institutional clients.

To contact the author of this story with feedback or updates, email Jeremy Chan

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