Interest in cryptocurrencies from institutional and retail investors has been growing exponentially in recent months, with Bitcoin, Ether and other cryptocurrencies reaching new all-time highs. Covid-19, which is seeing a resurgence in a more virulent form, has accelerated the trend towards digital solutions in finance from payments to banking to wealth management, and the traditional banks are stepping up to keep up as new investment patterns emerge.
Southeast Asia’s largest bank, DBS Bank has introduced a trust service for cryptocurrencies to allow the bank’s private banking customers to integrate cryptocurrencies into their wealth succession plans, according to an announcement today.
Singapore-based DBS is one of the first traditional banks in Asia to launch a digital exchange leveraging blockchain technology to provide tokenization, trading and a custody ecosystem for cryptocurrencies. The trust offering is limited to Bitcoin, Ether, Bitcoin Cash and XRP — the four cryptocurrencies available for trading on DBS’ digital exchange.
The new trust service — now live — marks an expansion of the bank’s cryptocurrency offerings, which will allow DBS private banking customers to invest, put into custody and manage their cryptocurrencies via DBS Trustee – DBS’ wholly-owned, licensed trust company. According to DBS, the offering is Asia’s first bank-backed trust service for cryptocurrencies.
DBS’ announcement comes as local media in Singapore reported today that more ultra-rich individuals are interested in setting up family offices in Singapore. An estimated US$15 trillion globally is expected to be transferred to the next generation by 2030, with about US$2 trillion from Asia. Singapore, in particular, has established itself as one of the leading private banking and wealth management centers globally and in Asia.
Google co-founder Sergey Brin and U.S. billionaire hedge fund founder Ray Dalio are said to be among the many high-net-worth individuals who have established family offices in the city state to manage their money, according to a report by The Straits Times. Family offices range from private bank customers with a net worth of more than US$10 million, to single-family and multi-family offices with above US$500 million and US$100 million in net worth respectively. There are about 400 single-family offices operating in Singapore as of end 2020, stated the report.
At DBS, clients typically start their family offices with US$20 million to US$30 million in assets. According to the bank, the trust structure will allow its high-net-worth clients to have the assurance that their digital assets will be safely managed and passed on to their intended beneficiaries. Critical information about their digital assets, including access instructions, passwords, and information on the types of digital wallets, online exchanges and wallet back-ups would be kept confidential after their passing, saving their heirs from dealing with complexities such as jurisdictional estate taxes.
“Confidentiality, peace of mind and taxation often emerge as top-of-mind concerns in our conversations with clients, and we would advise them to set up trust structures rather than wills, which are subject to the probate process,” said Lee Woon Shiu, DBS Private Bank’s regional head of Family Office, Wealth Planning and Insurance Solutions, in an emailed statement. “This is especially so considering that international regulations and protocols are still nascent in the digital asset space, which could give rise to complications or unnecessary confusion if proper measures are not in place to prevent them.”
“The Singapore government has been very prescient in trying to anticipate the needs of ultra-high-net-worth families,” Lee told Forkast.News, in a follow-up interview. “The family office regime in Singapore offers tax exemption for qualified clients, and it also offers residency status for ultra-high-net-worth families who fulfill the $200 million AUM requirements. All these make Singapore really attractive to some of the clients who are not just looking for a place to be based, but also a place that will embrace the next decade, or the next two decades, of the future in asset growth in new areas such as crypto.”
See related article: Singapore’s DBS bank becomes first in Asia to offer crypto exchange
According to Capgemini’s World Wealth Report 2020, high-net-worth individuals in Latin America and Asia-Pacific (excluding Japan) expressed the greatest likelihood to adopt wealth management offerings from Big Techs. With technology driving new trends in investing and asset allocation and as high-net-worth individuals and family offices increasingly embrace investing in cryptocurrencies, traditional banks like DBS are expanding their product offerings.
“In recent years, more clients have expressed interest or are already invested in digital assets, and we expect this trend to accelerate as cryptocurrencies turn more mainstream,” said Joseph Poon, Group Head of DBS Private Bank, said in a statement.
At DBS’ Q1 2021 earning briefing, DBS’ CEO Piyush Gupta said that DBS had decided in the early part of the pandemic to reposition itself for the future and build new lines of business by leveraging its technology capabilities. “I’m convinced that a big opportunity is to be part of the new digital infrastructures that are going to come into place as the world progresses down the digital trend.”
DBS Digital Exchange’s steady growth
The bank is already seeing steady growth in its digital exchange. In its Q1 2021 earnings call on April 30, DBS reported that it was holding S$80 million (US$60 million) in assets under custody, with trading volumes of S$30-S$40 million (US$22-US$30 million), a 10-fold increase since launch. Its investor base has grown to 120, with “a robust pipeline awaiting onboarding,” according to DBS.
DBS has, for now, taken a cautious approach with its foray into cryptocurrencies. The DBS digital exchange is only available to accredited investors and institutional investors, and trading is currently only available during Asian trading hours — a contrast to cryptocurrency exchanges such as Coinbase or Binance that offer trading services 24/7 to the masses.
See related article: Singapore’s DBS Bank reports US$60 million crypto under custody
DBS says it intends to scale its digital exchange business in the coming months through the issuance of security tokens, which will allow companies to raise capital through the tokenization of their securities and assets, as well as extend trading hours from the current Asian time zone to round-the-clock.
HNW clients a starting point for banks
It is likely that more banks will make announcements over the next few months related to offering digital asset custody for their high net worth customers, Stephen Richardson, vice president at Fireblocks, a digital assets custody provider, told Forkast.News in an email.
“A number of banks will start with high net worth digital asset solutions. We are seeing this with a number of banks in Europe and the United States such as BBVA, Goldman Sachs, Morgan Stanley and many other private banks,” Richardson said.
High-net-worth customers are an easy entry point for banks to engage with digital assets, Richardson said.
“Primarily, they tend to be long term asset holders, and so the amount of activity on digital asset deposits tend to be lower, thus making it a simpler technology solution to implement for the bank,” Richardson said. “Secondly, they represent customers who might be able to withstand the potential volatility currently associated with this asset class, and as such limit the potential fall out of retail investors losing money by engaging with digital assets.”
Alessio Quaglini, co-founder and CEO of institutional-grade digital assets custodian Hex Trust, told Forkast.News that DBS’ move was “a good piece of news” for the overall credibility of the crypto industry and would also help bring adoption in terms of providing another distribution point for customers to access cryptocurrencies. “It’s very important that such a reputable and large financial institution, one of the most advanced and reputable jurisdictions globally, is actually entering the market with a clear stance and a clear offering,” said Quaglini, in an interview.
“All of the banks are looking at the digital assets space, at different speed and paces, but I would say that all of them already have a program,” Quaglini said. “Some of them are almost ready to go to market and some are already in the market.”
Banks could use an in-house service or outsource their custody to third-party custodians.
Quaglini’s company, Hong Kong-based Hex Trust, a digital assets custodian for the banking sector, announced this week its partnership with Chainalysis, a blockchain analysis company, to provide a compliance-focused custody solution for financial institutions.
“The speed at which traditional financial institutions move is not comparable to the speed of the blockchain market at the moment,” Quaglini said. “I wouldn’t be surprised if traditional financial institutions would actually partner up, as it’s happening now, with the leading fintech companies to actually bring a solution to the market.”