2025 will be the year banks jump back into digital assets, reversing years of caution due to a challenging regulatory and market environment. Following the withdrawal of SAB 121 and new guidance from a key federal banking regulator, banks are now back in the race to develop crypto strategies to service their clients and stay competitive.
What we are seeing now is renewed interest from banks across the board — from credit unions and community banks to midsize and regional players to Wall Street giants. What is at stake for banks are existing and prospective client relationships as they compete for market share among retail and institutional participants looking to engage in digital assets. Banks that lead the way will be able to differentiate their products and create capital-efficient revenue streams.
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For reasons both cultural and technological, many banks may end up either licensing custody solutions to use in-house, or partnering with a crypto-native sub-custodian. One of the most important decisions a bank has to make is who they choose as a custody partner — a critical question as cybersecurity incidents continue to draw headlines.
From security and regulatory status to time-to-market, what should banks be considering as they dive back into digital assets?
Time-to-market and regulatory status
One of the first things any bank should consider is how their approach will impact time-to-market strategy and competitive positioning. For banks, working with a regulated custodian is more than just a box-checking exercise.
Partnering with a crypto custodian that has built a comprehensive risk management and compliance infrastructure — from AML and KYC controls to information security policies — can give banks a streamlined go-to-market strategy. Banks and their crypto partners should not only speak the same language, but be regulated on the same footing.
Crypto partners need to demonstrate that they meet — and exceed — bank regulatory expectations. Doing so can help to get regulators and senior bank leadership on board, in addition to creating peace-of-mind among clients.
Safety and resiliency
Banks getting into crypto want to do so quickly, but also safely in order to maintain the hard-earned trust of their clients. That is why banks often put security front-and-center in the search for a crypto custodian.
As a baseline, any crypto custody partner should take an end-to-end approach to security, involving multiple lines of defense for every transaction. The custody partner should also have in place robust technology to help ensure every transaction reflects client intent. Keeping assets legally separated from those of other clients and the firm can help to mitigate risk.
Finally, custody solutions should meet the stringent operational resiliency standards that banks are held to, so they can scale alongside the bank’s digital asset business.
Integrated solution
Banks should also consider ease of integration into existing systems, as well as the ability to support future product and revenue streams. Integrating crypto custody into core banking systems can help to optimize revenue opportunities, operational efficiency and time-to-market.
Secure custody is really the foundation for additional offerings — from collateralized lending to trading to staking. As banks look to meet end-client demand for full participation in the ecosystem, working with a custodian that offers an integrated suite of services is key.
This year will be a turning point for crypto adoption across traditional banks of all sizes, with crypto-native custody solutions providing a clear path for banks to stay competitive and meet client demand.
