HSBC Holdings is planning to offer a custody service for digital assets, specifically targeting institutional clients interested in tokenized securities. The global bank will be collaborating with Metaco, a technology firm owned by Ripple Labs, to provide this new service, Bloomberg reports.
The custody offering is expected to go live in 2024 and will complement HSBC’s existing digital assets issuance platform, HSBC Orion. Just recently, the bank introduced a system for issuing tokenized gold using distributed ledger technology to represent ownership of physical gold stored in its London vault.
HSBC is following the trend among major financial institutions in embracing blockchain-based applications after years of testing their potential in the realm of cryptocurrencies. JPMorgan Chase & Co has already implemented its first collateral settlement for clients using blockchain, while Euroclear has introduced a platform for issuing traditional securities via blockchain.
Although banks, asset managers, and market infrastructure providers have invested significant resources in adapting blockchain technology, the industry has yet to realize substantial benefits from these efforts. The launch of HSBC’s custody service and similar initiatives may serve as a testing ground for assessing the utility of blockchain technology.
Focus on Custody Services and Market Potential
Custody services have become the focal point for major players in the industry, offering opportunities for startups. Ripple estimates that the crypto custody market for institutions alone could reach nearly $10 trillion by 2030.
Zhu Kuang Lee, Chief Digital, Data, and Innovation Officer for Securities Services at HSBC, acknowledged the growing demand for custody and fund administration of digital assets from asset managers and owners. He stated, “We’re seeing increasing demand for custody and fund administration of digital assets from asset managers and asset owners, as this market continues to evolve.”
However, there have been changes and challenges in partnerships between established financial institutions and technology providers. Citigroup, who was initially developing its digital custody offering with Metaco, has reportedly entered informal talks with other providers and is reviewing its collaboration with the firm. Similarly, State Street Corp. terminated its licensing agreement with crypto custody firm Copper in March.
HSBC’s Commitment to Innovation
HSBC, also known as Hongkong and Shanghai Banking Corporation, is one of the world’s largest banking and financial services organizations. Recently, the bank completed the Hong Kong Monetary Authority’s CBDC pilot program in collaboration with Visa and Hang Seng Bank.
The pilot program, known as “Digital Hong Kong Dollar,” was launched earlier this year and utilized tokenized deposits for interbank B2B self-transactions and cross-chain transactions. HSBC’s involvement in these innovative initiatives demonstrates its dedication to exploring and adopting new technologies to enhance its services and offerings.
