Hong Kong Firm to Launch Crypto Custody Services to Meet Institutional Investor Demand

Omar Faridi
  • Hong Kong and Singapore-licensed Fusang Investment Office will soon offer crypto custodial services.
  • Fusang Investment CEO Henry Chong stated that “the way we keep digital assets secure is of paramount importance.”

Fusang Investment Office, an asset management firm serving private Asian family businesses, will reportedly launch cryptocurrency custodial services for in Hong Kong. The service will be called Fusang Vault, and it’s expected to be introduced in Q4 2018.

Fusang Investment CEO Henry Chong stated that partnering with an independent third party specializing in the crypto sector was required in order to offer the crypto-custody services, as it will need to hold and periodically audit clients’ digital assets.

The University of Oxford graduate noted that his company was planning on providing insurance services for its customers’ crypto assets. Speaking to the South China Morning Post, Chong said:

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 secured is of paramount importance.

Henry Chong

Meanwhile, Jolyon Ellwood-Russell, partner at law firm Simmons & Simmons, said that crypto-custody services were not yet regulated. This means that if a user’s crypto funds are lost or stolen, then they will have to rely on only the terms and conditions of their custodian services contract.

He also stated that there were several issues not addressed in the custodial services contract:

For example, 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. Just having segregated accounts does not automatically mean that on an insolvency the investors assets will be protected or recoverable from a receiver or liquidator.”

Jolyon Ellwood-Russell

Institutional Investor Demand

Despite Jolyon’s skepticism regarding custodial services for digital assets, several crypto companies already offer them. Notably, institutional investors have been “waiting on the sidelines” when it comes to cryptos, partly because of a lack of custodial services.

San Francisco-based cryptocurrency exchange Coinbase recently launched custodial services for cryptocurrencies in an attempt to tackle the problem. The company revealed their new service helps safeguard their clients’ assets by requiring multiple signers for all transactions.

The exchange’s crypto custody services also help customers keep their digital funds safe by setting withdrawal limits and providing audit trails. As recently covered, billionaire investor Mike Novogratz believes a “herd of institutional investors” is starting to move into crypto.

Timeless Luxury Group Switches to Security Token Offering for Its High-End Vacation Business

Security tokens have been proposed for some time now as an alternative to raising money in capital markets via shares or bonds. Timeless Luxury Group, which last month began its own security token offering , is proof that established businesses are looking to the crypto markets as an alternative option for fundraising.

Timeless Luxury Group , which operates a luxury holidays, villas and yachts business, had previously issued corporate bonds on the Düsseldorf Stock Exchange. It ran its first bond issuance in 2013 when it raised €10 million, and again in 2017 when it raised a further €10 million. However, it found limitations with this traditional fundraising route.

Michael Gössl, CEO of Timeless, explains:

Raising money using capital markets offers no flexibility, and the rules are very rigid. For bonds, there is the loaned amount, the coupon and the maturity date. Sure, there are slightly different ways to structure bonds, but it’s all a variation on a theme.

Security Token Offerings provide an alternative option for companies like Timeless. STOs are an evolution of Initial Coin Offerings, but unlike ICOs they are backed by an asset, the details of which are written into the smart contract of the token. This gives STOs a foundation of value, unlike most ICOs which are purely speculative. In the case of Timeless, it allows the company to give its token holders a share of profits:

Michael Gössl says:

An asset-backed digital security token offers something totally different [to corporate bonds]. The terms are flexible and written into a smart contract, and it’s instantly liquid on crypto exchanges or peer-to-peer. It offers a new way of investing, and we’re at the tip of the iceberg in terms of where it will go. Timeless is pioneering this method of fundraising that will become the new normal.

Timeless is looking to use the money raised by issuing security tokens to expand its business, and give STO investors the opportunity to participate in the planned development of the company, as well as discounts on holidays.

As STOs become more popular and the process of running an STO becomes more established, making the switch from corporate bonds to security token offerings will surely become a well-trodden path for other established businesses looking to raise funds.