April 20, 2021

By: Kate Drew

Bank Execs Just Don’t Get Crypto

Some days it feels like 2017 — the cryptocurrency boom is raging and the word “mainstream” is everywhere. The difference is that, today, the chatter isn’t just about the price of Bitcoin. There have been more tangible developments recently that give some validity to the idea that crypto is here to stay — last summer, for example, the Office of the Comptroller of the Currency (OCC) announced that banks would be able to provide crypto custody services, prompting a number to launch such plans, and the Coinbase listing last week certainly adds fodder. As crypto continues its steady march into society, traditional banking institutions are being forced to think through what role they will play. Those jumping in now tend to be the largest players, but what about everyone else?

Well, it seems there is some hesitation. According to the RUSI-ACAMS Cryptocurrency Risk & Compliance Survey, just 19% of respondents from financial institutions consider the global use of crypto to be an opportunity, while 63% view it more as a risk. This hesitation is understandable given the novel nature of the technology and concerns about being able apply anti-money laundering and fraud techniques effectively — when asked about specific risks, 88% indicated they had concerns about the use of crypto for money laundering purposes. However, this could be partly due to a lack of understanding. The survey also found that 53% of respondents in North America do not believe financial institutions have a good understanding of the risks related to crypto. This suggests that a lack of education and knowledge around the nascent space is driving the reluctance, rather than a thorough assessment of the risks.

In particular, crypto custody is an area where many of the larger banks are showing interest as their clients dip further into the space; 40% of respondents to a Goldman Sachs client survey in March reported exposure to crypto, while 61% said they were bullish on the industry, for example. It’s likely that, over time, demand for such services will shift downstream as more consumers and institutions enter the market. At that point, banks outside of the biggest firms will need to have a plan for how they will meet the demand. Handling crypto has a number of specific implications; providing custody services, for instance, requires being able to store private cryptographic keys. Doing this well will require expertise not only to manage risk but also to ensure technological competency. One option would be to work with cryptocurrency veterans like Coinbase or Gemini that already have experience in this area. Another would be to explore offerings from modular, cloud-based services firms like Mambu that offer crypto components. Regardless of the approach you take, though, it’s time to acknowledge that this market is unlikely to fade away anytime soon, and banks have a role to play. The first step is to learn.

–Kate Drew is the Director of Research at CCG Catalyst. Contact her at KateDrew@ccg-catalyst.com or 1-480-744-2240. Follow CCG Catalyst on LinkedIn and Twitter.

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