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.

Silvergate Bank to Offer Institutional Crypto-Backed Loans

Neil Dennis

Silvergate Bank, one of thefinancial service providers of choice for the cryptoasset industry, has said it plans to add crypto-lending to its array of services.

The California-based company, which provides commercial banking and payments services to many of the top crypto-related firms such as Bitstamp and Coinbase, said in an updated IPO filing it would offer institutional clients loans in fiat currency collateralized with cryptoassets. 

This service would be included in its Silvergate Exchange Network - a payment system designed for its crypto exchange clients. The company said in the prospectus update:

Offering lines of credit would improve liquidity within the order book of our exchange clients, enabling additional trading on their platforms, potentially reducing pricing arbitrage across exchanges and improving the stability of digital currencies.

Risk Returns

Silvergate said the service would earn it "attractive risk adjusted returns" because even if the price of cryptoassets being held as collateral should fall, it can sell the assets on one of its client exchanges.

The bank has been rapidly expanding its roster of crypto-related clients: when it updated its IPO prospectus on December 31 it had 542 crypto clients, compared with 655 as of June 30.