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.

Facebook Answers Tough Questions About Libra by U.S. Senate Banking Committee

This article focuses on highlights from the testimony of Facebook's David Marcus, who is a co-creator of Libra and the head of the Calibra project, before the U.S. Senate Committee on Banking, Housing, and Urban Affairs (aka "Senate Banking Committee"), on Tuesday (July 16).

On June 19, the U.S. Senate Banking Committee announced that it will hold a hearing (“Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations") on July 16 to discuss Libra. This is the same Committee that wrote an open letter on May 9 to Mark Zuckerberg, Founder, Chairman, and CEO of Facebook, in order to get answers to seven questions about Facebook's proposed crypto-based global payments system.

For the sake of brevity and clarity, David's comments and those of the senators have been paraphrased and abbreviated. Also, although the actual hearing went on for almost two and a half hours, we focus only on the most interesting and difficult questions that Marcus was asked.

After reading his opening remarks, the questioning of David Marcus started. First up was Senator Crapo (who is the Chairman of the Committee).

Senator Crapo: Should the US not establish the rules?

Marcus: I agree. The U.S. should lead. Switzerland was chosen as the home of the Libra Association because it is a well-established place for many international organizations and not to escape from regulatory oversight. Libra Association will still be registered with FinCEN (as a money service business).

Senator Crapo: Which regulators will be providing oversight for Libra?

Marcus: We are happy to comply with all the appropriate regulators around the world.

Senator Crapo: What info will Facebook will collect when someone uses the Calibra wallet?

Marcus: None (i.e. only what is necessary for AML purposes). Also, people are free to use other Libra wallets (provided by third parties).

 

Senator Brown: Should anyone trust Facebook with their money?

Marcus: We have made mistakes. Trying to get better. Facebook is just one of 28 members of Libra Association.

Senator Brown: You get paid in USD. Will you pledge to accept 100% of your salary and other compensation in the Libra cryptocurrency?

Marcus: We are not trying to compete with bank accounts. Yes, I would.

Senator Brown: Both parties as well as the President are worried about Libra... What will convince you not to launch Libra?

Marcus: We agree that there are legitimate concerns. That's why we released the Libra white paper so early. We want to get this right.


Senator Toomey: There are lots of benefits in blockchain technology and cryptocurrency. We should be exploring this. We should not strangle this baby in the crib. Is it the plan at some point to seek the consent of participants so you could monetize Calibra users' financial data somehow?

Marcus: No. We will make money in two different ways. First, we expect the transactions taking place through Calibra to lead to more advertising by our business users. Second, we hope to, at some point in the future, partner with financial services companies to offer our users new products/services.

Senator Toomey: Regarding the Libra Reserve, what about the interest that will generated? It could become quite substantial. If Libra Association is a non-profit, why are you distributing this income to the members of the Association and/or the investors?

Marcus: This income will not be unlimited. We will need to find a way to manage the reserves.


Senator Tester: I am concerned about consumer security. With cryptocurrencies like Bitcoin, transactions are final and cannot be reversed. How will you handle theft?

Marcus: Calibra wallet will offer protection against fraud. Consumers will be made whole. We will do our best to resolve those claims as soon as possible.

Senator Tester: What kind of faith can we have in Libra?

Marcus: There will be no fractional reserve (unlike with traditional banking).

Senator Tester: How can you assure us that our money will be there?

Marcus: The reserve is one for one. We want there to be oversight of the reserve.

Senator Tester: How will you stop bad actors from using Calibra?

Marcus: To create a wallet, you will need a government-issued ID. We will go to through AML and CFT procedures.

 

Senator Tillis: How much money are you putting into the infrastructure?

Marcus: Facebook has the resources to innovate. We have not determined an exact budget.


Senator Warner: How will Facebook support third-party wallets? Will you make it easy for users to move their data from Calibra to other wallets?

Marcus: Yes.


Senator Schultz: Why is Facebook moving to crypto before fixing its other problems?

Marcus: We want to keep innovating and serving our users.