Legacy financial institutions continue to develop digital- asset custody solutions to meet institutional demand, despite this year's declines in the crypto markets, regulatory uncertainty and the cost of adding these services.
Bank of New York Mellon and Nasdaq are developing crypto custody platforms for institutional investors, with plans to offer other crypto services. BNY Mellon went live with its custody service for some investors this week, and Nasdaq plans to come to market in the first half of next year, primarily developing the technology internally.
Traditional financial institutions, crypto-native custodian companies and consulting firms believe custody services are the basis of digital-asset management and the gateway for legacy companies to play their hand in the evolving crypto landscape. The revenue custody provides alone isn't enough to support the business case for adding the service, said John Oliver, co-leader of PricewaterhouseCoopers FinTech Trust Services. But some banks and institutions may forgo return on investment in the short term for a longer-term vision in light of growing investor interest, he said.
"Institutional money is used to a certain set of wide- ranging services, they are used to having access to capital at a certain cost, they are used to having access to ancillary services on top of their custody, and many crypto natives may not be there yet," Oliver said.
Leaders in the digital-asset sector told American Banker that traditional financial services companies need to consider whether developing the technology in-house or partnering with third parties is the best course of action.
Some traditional banks, like State Street and Northern Trust, offer crypto custody services primarily through external technology providers. BNY Mellon and Nasdaq say they are leaning more heavily on in-house development.
BNY Mellon this week launched its digital-asset custody platform to hold and transfer bitcoin and ether for select U.S.-based institutional investors. Caroline Butler, CEO of the firm's custody services, said BNY Mellon's differentiating capability is connecting digital-asset management to the traditional asset space. She said this is important for institutional clients who invest in digital assets, but through portfolios that have a mix of digital assets and some traditional assets.
Butler added that the bank can bring digital and traditional assets together on its systems for clients to facilitate reporting for compliance or tax purposes.
Nasdaq announced last month that it was building a digital-assets business to serve institutions, with plans to launch custody and execution products next year. The second-largest stock exchange aims to increase institutional access to crypto assets, and tapped Ira Auerbach as head of digital assets to lead the strategy and development. Auerbach, who most recently was with the cryptocurrency exchange Gemini as global head of the platform's prime broker, said Nasdaq is developing a distinctive offering.
Custody platforms can use hot wallets, cold wallets or a combination of the two to store cryptocurrency private keys. Hot wallets are connected to the internet, which make them more accessible and scalable but potentially more prone to cyberattacks. Cold wallets are air-gapped from the internet — in other words completely offline, making them more secure but also less accessible.
Auerbach said Nasdaq's platform will combine hot and cold wallet systems in a way that provides scalability and accessibility, but declined to deliver specific details on the technology. Nasdaq is concurrently expanding its anti-financial-crime technology to tailor capabilities to digital assets.
"A lot of crypto-native exchanges have close to a decade head start on Nasdaq," Auerbach acknowledged. "What we have is a vantage point of working with institutions for over 50 years, intimately knowing the workflows and the requirements from both the custody and the liquidity standpoint. We believe we can combine that with the latest cryptographic tools and bring to market a product that is superior than what currently exists in the marketplace."
Diogo Mónica, co-founder and president of the crypto custody platform Anchorage Digital, said it's difficult for traditional financial institutions to develop crypto custody solutions given talent constraints, legacy technology bogging down systems and a rapidly changing digital asset environment. Anchorage, founded in 2017, was granted a national trust bank charter from the Office of the Comptroller of the Currency in 2021.
PWC's Oliver said banks and firms need to weigh their individual core competencies while deciding how to enter the crypto custody business. Legacy institutions may develop in-house, partner with third parties or even begin down a path and later pivot, but will find a way to offer the service if they so choose, he added.
"When we see these traditional firms get involved, they put significant capital and dedication in to test their hypothesis," Oliver said.
BNY Mellon began designing its digital-asset services last year, but also enlisted financial technology firms to help. The firm used Fireblocks for wallet infrastructure, but fully integrated the system to hold wallets behind its firewall, Butler said. The company also worked with the fintech Chainalysis for analytics to supplement anti-money-laundering compliance and know-your-customer compliance.
"We don't believe in building it all ourselves," Butler said. "We leverage the best-of in the industry, integrated into an open architecture as part of our innovation strategy. So this is just very much in line with what you'll see across a lot of our innovative journeys in the bank."
Butler said BNY Mellon is aiming to roll out more crypto capabilities after monitoring its custody platform for a while, depending on regulatory approval and demand. Auerbach said Nasdaq hopes to launch ancillary services concurrently with its custody platform in the first half of 2023.
Financial regulation has also affected companies' plans to get in the crypto custody game. In March, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 121, requiring custodians to list clients' crypto assets as a liability on their balance sheets.
Butler told Bloomberg this week that BNY Mellon will follow the SEC guideline. The bank got approval from the New York State Department of Financial Services before launching crypto custody. Butler said in an interview that the bank is working with regulators across the industry.
"I do think, given that we've got regulatory approval here in the U.S., that's testament to the institutional- grade standards that we've brought to this particular capability, this particular part of the digital-asset landscape," Butler said. "And we look forward to the continued engagement with our regulators, because they've trusted us to provide custody in the markets."
Federal regulators are warming to scenario analysis as an emerging tool to evaluate financial institutions’ vulnerability to climate risk, drawing criticism from at least one Senate Republican.
The Federal Deposit Insurance Corporation and the Federal Reserve are rallying behind scenario analysis, which involves examining the economic ramifications of hypothetical situations on companies and the market at large.
Martin J. Gruenberg, acting chairman of the FDIC, this week emphasized the agency’s support for the process in a speech on climate risk. Gruenberg said the FDIC’s mission to maintain stability and public confidence in the U.S. financial system includes considering climate change’s adverse impacts on the financial system.
“Climate-related scenario analyses should be designed and used by institutions for building knowledge and capabilities associated with climate-related financial risk management, as well as for better understanding gaps in methodologies and data,” he said in a speech at the the American Bankers Association’s annual convention.
The FDIC is finalizing a framework to manage exposure to climate-related financial risks that would support banks’ use of scenario analysis.
Meanwhile, the Fed announced that six of the nation’s largest banks will participate in a climate analysis exercise next year, marking a potentially monumental move for U.S. financial institutions on addressing climate risk.
Bank of America Corp., Citigroup Inc., Goldman Sachs Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. will participate in the pilot, the Fed said last week. Through the trial, the central bank will assess the resilience of the financial institutions under different hypothetical climate scenarios.
These moves are already drawing criticism from Republicans.
Senate Banking ranking member Patrick J. Toomey, R-Pa., slammed the central bank’s pilot as an initial move to discourage banks from investing in energy companies and other firms in carbon-intensive industries.
“The real purpose of this program is to ultimately produce new regulatory requirements,” Toomey said in a statement. “While the Fed can call this pilot program by whatever name it may prefer, it sounds exactly like a stress test to me.”
The adoption of scenario analysis was one of the top recommendations from the Financial Stability Oversight Council’s report last year on climate risk in the financial system. FSOC, which is made up of leaders of the top banking and financial regulators, including the FDIC and the Fed, identified climate risk as an “emerging threat to the financial stability of the United States” and encouraged council members to use the recommendations as appropriate in their agencies.
Democrats such as Sens. Elizabeth Warren of Massachusetts and Brian Schatz of Hawaii; left-leaning advocacy groups; and investors concerned with environmental, social and governance issues have ratcheted up pressure on banks to do more to factor climate risk into their business strategies.
The six banks participating in the Fed’s pilot all faced shareholder proposals this proxy season asking the companies to stop financing new fossil fuel development. All those proposals failed to garner majority votes at the companies’ annual meetings.
“The exercise could benefit bank credit profiles over time to the extent it identifies gaps in banks’ data collection and risk governance and builds U.S. regulatory competence around systemic climate risks, which has lagged other developed markets,” Fitch Ratings said in a note this week on the Fed’s announcement.
While the timing for incorporating scenario analysis into financial regulations and the potential ramifications remains uncertain, there will likely be more action in the coming months, Fitch said.
Fed Vice Chair for Supervision Michael Barr last month indicated the central bank, the FDIC and the Office of the Comptroller of the Currency would work together to create guidelines for large banks on managing climate risks to help reduce banks’ vulnerability to long-term climate shocks.
Contradicting Toomey’s statements, the FDIC’s Gruenberg and the Fed emphasized that climate scenario analysis is separate from bank stress tests, which determine whether banks have enough capital to continue lending to households and businesses during a severe recession.
“To be clear, I view scenario analysis as an exploratory risk management tool designed to better understand the range of climate-related financial risks that may impact a large, individual institution and the financial system as a whole,” Gruenberg said. “Scenario analysis is not a stress testing exercise and will not have regulatory capital implications.”
The Fed said its climate scenario analysis exercise “is exploratory in nature” and none of the banks would face capital or supervisory implications because of participating in the pilot.
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It is difficult to overstate the importance of Wednesday on the integrity and future security of Formula 1.
Tomorrow, the FIA is set to publish the financial certifications relating to last year’s Financial Regulations.
On the surface, it is a dry and uninteresting subject appealing only to the paper pushers, but it has a very real impact on the sport more broadly.
Last year, Formula 1 introduced rules surrounding the way teams can, and more the point cannot, spend their money.
An upper limit, set at $145 million, was introduced with a list of exclusions such as travel, marketing, driver salaries, and the top three executives at each operation.
The intent was to level the playing field and offer those at the back without the financial clout of those at the front a more equitable chance of competing for meaningful results.
To do that, their books are audited, a process that began in March and, after a delay or two, is set to reach its conclusion tomorrow with the publication of the FIA’s findings.
It was also a key subject in the Singapore paddock amid accusations that two teams had breached the cost cap figure.
There seems to be no solid foundation for those allegations beyond opinion based on observation and extrapolation from one team’s own financial position to another.
Only, no two teams are identical, and the interpretation on the regulations is open to exactly that.
The auditing process has been something of an evolving beast with the team’s financial bosses working together along with the FIA to settle upon definitions on various aspects.
It is not trivial. How is the cost of a power unit accounted for equitably for an OEM and a customer team? What about labour laws and the redundancies the larger teams have had to make – what leniency has there been for those?
What about staff who’ve been redeployed, or have tasks aside from F1; what is their value and therefore cost under the Financial Regulations?
These are high-level questions, but there has been discussion over nuances in the wording of interest only to the accounts and lawyers involved. In Formula 1, lawyers are always involved.
While that is all well and good, what happens if a team does breach the cost cap? It’s never happened before; there is no precedent.
Indeed, there are also very deliberately no defined penalties as, this being F1, teams would weigh up the cost of the penalty versus the relative gain.
Logic says there are two courses of action for any breach; a lenient approach noting this is the first time the process has ever been used or a draconian one in an attempt to set a harsh precedent and dissuade opportunists going forward.
It may be, and in all likelihood will be, that any instance is treated on its own merits without a blanket or hard and fast rule.
For instance, the classification of a staff member is different to getting a process wrong – both warrant penalty if they’re in breach, but do they warrant the same penalty? Probably not.
The devil is absolutely in the detail, but getting that wrong has dramatic implications going forward.
Turning a blind eye threatens to undermine the Financial Regulations, which currently underpin much of the sport’s strength.
Currently, none of the 10 teams has serious question marks about their ability to carry on as going concerns. Wind the clock back just a handful of years, and that was not the case at all.
Much of that is the result of the Financial Regulations limiting what teams can spend at a reasonable level, while at the same time increasing commercial confidence that the sport is more equitable – even if the usual protagonists have remained at the front (the best are the best for a reason, after all).
That could all come crashing down on Wednesday should the handing of the current process, and perhaps more specifically how any outliers are handled, be found wanting.
In true Formula 1 fashion, there will be controversy, finger-pointing, and accusations. That is the nature of the sport, it’s why the paddock is called the piranha club.
Ultimately it comes down to a simple question: did the team spend more, or less, than $145 million in 2021?
The answer will be less clear, because even if it is yes, that may not mean a team has breached the rules. This is Formula 1, after all.
There are other questions that need to be asked relating to the efficiency of the process, given it’s now 10 months since last season ended, but they will need to wait for the moment.
Bank stocks have stumbled in 2022, with the KBW Nasdaq Bank Index dropping 30% year to date, outdoing the S&P 500’s slide.
Bank stocks have struggled in 2022 amid soaring interest rates, with the KBW Nasdaq Bank Index dropping 30% year to date, exceeding the S&P 500’s 25% slide.
Rising interest rates help banks to some extent, as their rates of return on loans and bonds rise faster than the interest rates they pay for deposits. But higher rates hurt banks by depressing the economy, denting demand for loans and bank services.
With banks starting to report third-quarter earnings this week, Bank of America analysts offered analyses of the major players.
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It’s “finding receptivity after being viewed as a … short for most of this year,” the analysts wrote in a commentary.
A lower stock valuation, “well understood capital challenges, and visibility on 2023 expenses have all created an openness among certain investors to add exposure,” they said.
“While the stock has a history of trading poorly on earnings prints, the stock weakness coming into Friday's results could lead to outperformance, provided we don't get any idiosyncratic negative surprises.”
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It “remains best positioned and among our top long ideas in the group,” the analysts said. “But [investors] will need validation that share buybacks will resume after management surprised investors with no share buybacks in the third quarter.”
Investors will also focus on management messaging for continued expense savings in 2023, they said.
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“Citigroup appears oversold at 0.5 times tangible book value,” the analysts said. The bank lacks capital/expense leverage, and near-term earnings visibility is very limited, they said.
“Investors would need to see evidence that management is able to execute on strategic priorities without any major hiccups in order to revisit the stock.”
The strategic priorities include regulatory consent orders, business exits and optimizing capital allocation, the analysts said.
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Its “ability to defend the return on equity (ROE) in light of continued weakness in investment banking is key to supporting our thesis … for a secular re-rating in the stock,” the analysts said.
“Investors will be keenly watching for management comments on the consumer strategy, given the flurry of news reports … suggesting that a strategic rethink is underway,” they said.
“We see it as unlikely that management reverses course on this strategy, a hallmark initiative of CEO David Solomon, but some refinement around the pace of investment spending and growth targets could occur.”
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“MS remains among the most favored names in our coverage universe,” the analysts said. “Strong execution combined with deal-driven synergies and idiosyncratic growth drivers allow continued progress toward its strategic goals.”
That “should keep shareholders satisfied,” they said. “Moreover, MS is well positioned in terms of excess capital to either deploy buybacks or opportunistically gain market share.”
Still, “above-average exposure to the equities business and a prolonged slump in investment banking activity will test ROE resiliency,” BofA analysts said.
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A vision to promote competition, innovation and growth but does it go far enough on financial inclusion, the environment, and the role of the regulators?
I have written before about the Financial Services and Markets Bill - an incredibly important piece of legislation currently before Parliament. The Bill is set to usher in the largest change to financial services in a generation.
It is a substantial bill, consisting of 20 separate measures and over 335 pages, which comes about after several Treasury consultations and years of dialogue with the City and trade bodies that represent the financial services industry.
The Bill had a second practicing in the House of Commons on the 7th September, the first opportunity for a substantial parliamentary debate on the new legislative proposals.
This Bill will bring stablecoins into payments legislation. Greater regulatory clarity around stablecoins can only be a good thing, providing better conditions for issuers and service providers to operate and grow in the UK.
The Economic Secretary to the Treasury, Richard Fuller MP, opened the debate by stating: “The Bill has a single vision: to tailor financial services regulation to the UK’s needs, to promote global competitiveness and innovation, and to contribute growth in our economy.”
He also set out five objectives of the Bill: to implement the outcomes of the future regulatory framework (FRF) review, to bolster the competitiveness of UK markets, to promote the UK’s leadership in the trading of global financial services, to harness the opportunities of innovative technologies in financial services, and to promote financial inclusion and consumer protection.
This initial objective, establishing the FRF and ‘sweeping away EU regulations’ has been characterised by some as a key Brexit opportunity, and described by the Rt Hon Rishi Sunak MP during the debate as a Bill that “delivers” on “what Brexit was all about.”
The FRF proposals are based on the model of regulation introduced by the Financial Services and Markets Act 2000 (FSMA) which delegates standard setting to independent regulators working within an overall policy framework set by government and Parliament. This model is intended to retain a “coherent, agile and internationally respected approach” and was reiterated by the Economic Secretary to the Treasury during the debate:
“Schedule 1 contains more than 200 instruments that will be repealed directly by the Bill. While in some cases these rules can simply be deleted, in many areas it is necessary to replace them with the appropriate rules for the UK, in our own domestic regulation. These instruments will therefore cease to have effect when the necessary secondary legislation and regulator rules to replace them have been put in place.”
We were lucky during the debate to benefit from contributions, not only from the ex-Chancellor of the Exchequer but also from the former Economic Secretary to the Treasury, John Glen MP, who had held that post for the last four and a half years and has been absolutely key in developing this Bill.
In commenting on the FRF he stressed: “We are not seeking to deviate from norms in other jurisdictions; what we are trying to do is right-size those rules for the UK.”
The current Economic Secretary to the Treasury also highlighted: “The Bill also delivers … the most urgent reforms to the markets in financial instruments directive (MIFID) framework, as identified through the wholesale markets review. It will do away with poorly designed and burdensome rules, such as the double volume cap and the share trading obligation, which will allow firms to access the most liquid markets and reduce costs for end investors.”
He also pointed out, “For the first time, the Prudential Regulatory Authority and the Financial Conduct Authority will be given new secondary objectives, as set out in clause 24, to facilitate growth and international competitiveness.”
The sections of the Bill dealing with crypto-assets and stablecoins are Clause 21 and schedule 6. This part of the Bill will, “extend existing payments legislation to include payments systems and service providers who use digital settlement assets that include forms of crypto-assets used for payments, such as stablecoin, backed by fiat currency. This brings such payments systems within the regulatory remit of the Bank of England and the payments system regulator, allowing for their supervision in relation to financial stability, promoting competition and encouraging innovation.
“To foster innovation, clauses 13 to 17 and schedule 4 enable the delivery of a financial markets infrastructure sandbox by next year, allowing firms to test the use of new and potentially transformative technologies and practices that underpin financial markets, such as distributed ledger technology.”
The final of the five objectives, to promote financial inclusion and consumer protection are covered in Clause 47 and schedule 8 of the Bill. The Minister drew attention to an amendment I tabled to the previous Financial Services Act that permits cashback without purchase. This Bill goes further in protecting access to cash and will deliver the FCA “the responsibility to ensure reasonable access to cash across the UK.”
The second practicing is an important step in the legislative process in which MPs can identify areas of concern and seek clarification on particular issues. Despite warm words and generally widespread support from across the house, this final part of the Bill dealing with financial inclusion raised the majority of questions and concerns. Several MPs focused on the issue of access to cash, seeking reassurance that access to cash would be free, that ‘reasonable access’, would be carefully defined to cover distance, accessibility, include face to face banking services and also consider cash acceptance and cash infrastructure.
Unfortunately, the Minister could not reassure the House: “When I say “access to cash” I mean access to cash. My Honourable Friend raises the question of whether that access should be free; that is a matter to which we will return in Committee, but I cannot deliver him that assurance at this stage.”
My colleagues also raised the issue of Buy Now Pay Later (BNPL), the terrible situation facing ‘mortgage prisoners’, people trapped in high-cost mortgages, the need for more affordable credit and whether the FCA should have a ‘must have regard to financial inclusion duty.’ I have spent years campaigning on improving financial inclusion and have raised many of the same issues in Parliament.
Powerful arguments were also made about the environment. Caroline Lucas MP pointed out: “The Bill contains a new statutory objective on competitiveness and growth, which ranks those elements above the UK’s legally binding nature and climate targets. Given that a thriving economy depends on a thriving environment, will the Minister look at this again and consider introducing a climate-and-nature-specific statutory objective as well…?”
She went on to point out that we have “a real opportunity to be a green competitive financial centre.”
These are familiar arguments, similar to those myself and colleagues made in the UK Infrastructure Bank Bill debates recently when we pushed the government to be absolutely clear about how they would ensure that the bank invests in infrastructure that will tackle climate change as well as supporting economic growth.
Concerns were raised about the regulators, particularly around power, accountability, and capability. In terms of accountability, questions were asked about whether the Henry VIII powers – passing power from Parliament to the executive (in this case regulators and Treasury) would lead to a lack of appropriate accountability for Parliament – Angela Eagle MP said she was thinking about “the fact that a great deal of extra power will be given to the regulators and the Treasury.”
John McDonnell MP was the most critical of the FCA stating that the FCA has been a “catastrophic failure.” He also pointed out that “40 bodies are regulating our finance sector in some way and there is a need for consolidation and to learn the lessons of experiences so far.”
Other concerns centred around greater action to prevent scams and Improve fraud protection; for example, the suggestion by Damien Hinds MP that push payment scams and auto reimbursement should extend beyond banks to social media firms and tech companies.
Another bill just published – the Economic Crime and Corporate Transparency Bill – is designed to help crack down on fraud and other financial crime through reforms to information sharing and extending powers to deal with economic crime. The Bill proposes new intelligence gathering powers for law enforcement, reforms to Companies House and the rules around limited companies as well as additional powers to seize cryptoassets.
On the day after the debate the House of Commons Public Bill Committee published a call for written evidence. If you have relevant expertise and experience or a special interest in the Financial Services and Markets Bill, then I would urge you to be part of this process and write in. This Bill proposes an ambitious and much needed set of reforms that has the potential to assert the UK’s global leadership in financial services and be absolutely transformative for citizens, businesses, and UK Plc.
Cryptocurrency is coming to the oldest U.S. bank in what experts are calling a major milestone that adds an “aura of legitimacy” to the crypto industry.
Bank of New York Mellon said select clients can now hold and transfer bitcoin and ether via the bank’s platform, according to a accurate news release. This makes BNY Mellon the first large U.S. bank to safeguard cryptocurrencies in a similar fashion to stocks and bonds, according to The Wall Street Journal, which first reported the news. The bank will store clients’ crypto keys and offer some of the bookkeeping services to fund managers that it does for their other financial assets.
Major players in the traditional finance space have long expressed skepticism, and sometimes even hostility, when it comes to cryptocurrency. J.P. Morgan Chase CEO Jamie Dimon, for example, has called bitcoin “worthless” and a “fraud.” Securities and Exchange Commission chairman Gary Gensler and Treasury Secretary Janet Yellen have pointed out crypto’s dangers many times.
There’s good reason for hesitation around cryptocurrencies like bitcoin — which has sunk to around $20,000 per coin after skyrocketing to near $68,000 late last year — including a lack of clear regulation and guidance around the market.
But firms can’t deny that clients want more access to crypto. BNY Mellon, which first shared its plans to hold and transfer cryptocurrencies for clients back in 2021, has taken note.
The move is a “strong indication that we’re moving to a place where crypto assets will be treated more like other assets,” says Julie Hill, professor at the University of Alabama School of Law and expert on financial institution regulation.
BNY Mellon is a custodian bank, meaning that it holds assets like stocks, bonds and alternative assets and provides operations related to those assets for its customers. The crypto offering is for select institutional investors (think pension funds and hedge funds, not everyday investors like you and me).
By adding digital assets to the portfolio of assets the bank custodies, customers can invest in crypto in a lot of the same ways they can traditional assets, Hill says. Customers won’t have to go to another company they’re not familiar with to manage their crypto; they can work with a bank that may be their longtime partner, she adds.
BNY Mellon’s entrance into the space is notable because the bank is first and foremost a financial institution, not a cryptocurrency company, says James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy and Research.
“They have a deep understanding of risk and compliance,” he adds. “They bring a seriousness to the market as well as cryptocurrency as a new asset class.”
BNY Mellon’s move is an intersection of decentralized finance and traditional finance, and a sign of how the two financial ecosystems are likely to get increasingly intertwined as crypto goes mainstream, says Eswar Prasad, a professor at Cornell University and author of The Future of Money.
“This development highlights how banks and other financial institutions are beginning to address customer demands for more products and services related to custody of and trade in crypto assets,” Prasad says. “The willingness of banks to offer such services will add an aura of legitimacy to crypto assets and facilitate their wider adoption.”
BNY Mellon’s news is just the latest example of institutional investors seeing the value of decentralized finance technologies, says John Wu, president of Ava Labs, which supports the development of the Avalanche public blockchain. He also points to BlackRock recently partnering with Coinbase to allow institutional investors to trade and manage bitcoin, and investment management firm KKR putting a portion of a fund on the Avalanche blockchain.
“In a previous cycle, any one of these would be the defining moment for institutional adoption of crypto,” Wu says. “Institutional momentum is very real, and at this point, underestimated.”
The move also puts some weight behind cryptocurrency as an asset class.
“There’s still this misperception that crypto is just drug money or money laundering or trafficking,” says Lamont Black, associate professor of finance at DePaul University and a former Federal Reserve economist. “This also kind of legitimizes the asset class in an important way.”
Javelin Strategy’s Wester adds that BNY Mellon’s decision shows institutions are taking crypto seriously as financial tools.
BNY Mellon is a leader in the institutional financial space, not in the retail space. But the fact that institutional investors are able to increase their crypto holdings through BNY Mellon could set a precedent that impacts smaller institutions that do work with retail investors, Black says.
“Other institutions can now point to Bank of New York Mellon as being an example of a highly regulated institution that is now playing in the crypto space,” Black says. That might then create more opportunities for retail investors.
But the extent to which banks can provide services related to cryptocurrencies and digital assets is still an open question, Hill says. People will be watching BNY Mellon’s business model for institutional investors to see if it involves excessive risk, she says.
If it doesn’t, we’ll likely see other market entrants that focus on non-institutional investors — aka you and me.
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Postal banking is just an idea in the United States, but it's taking form in America's northern neighbor.
Toronto-Dominion Bank, which has assets of 1.8 trillion Canadian dollars ($1.3 trillion U.S.), said Wednesday it is partnering with Canada's postal service to offer low-cost loans for amounts as small as 1,000 Canadian dollars. TD and Canada Post said strong consumer demand during a three-month market test encouraged them to offer the loan, called the Canada Post MyMoney Loan, nationwide.
"We were really surprised by the demand for the product, which, frankly, exceeded our expectations," said Michael Yee, vice president of financial services at Canada Post.
Canadians of all income levels and credit scores applied for the unsecured loan. Applicants said they planned to use the funds to cover emergency expenses including car repairs and veterinarian bills. The product is intended to reach all Canadians, especially those in rural, remote and Indigenous communities who may not have local access to affordable loans, officials said.
Attempts at combining banking services with the scale of the United States Postal Service have so far been met with slow uptake and resistance from the banking industry. In the U.S., proposals for the Postal Service to engage in financial services have ranged from limited services such as check cashing to fully insured financial arms capable of taking deposits and making loans without the presence of a bank as a backer. The alliance like the one between TD and Canada Post hasn't been tried stateside.
The announcement doesn't advance postal banking in the U.S., said David Pommerehn, general counsel at the Consumer Bankers Association, a Washington, D.C.-based industry group.
"You have to look at what's happening in Canada and what's happening here in two very different ways," Pommerehn said. "Providing customers with access to bank products delivered through a well-regulated financial institution at a post office branch is entirely dissimilar from transforming a federal agency into an independent financial services issuer."
The idea of postal banking in the U.S. has gained attention in accurate years. In the early months of COVID-19, Democrats in Congress made the case that a postal banking network would have made it easier for the underbanked to cash their stimulus checks. Later in 2020, JPMorgan Chase said it had engaged in preliminary discussions with the U.S. Postal Service to place ATMs in certain underserved areas.
Beginning last fall, the U.S. Postal Service began allowing customers at a handful of locations to redeem business checks for Visa gift cards of up to $500. Over five months, the program brought in just six customers and $35.70 in fees, according to a regulatory fiiling by the Postal Service.
TD hasn't announced a launch of similar products in the U.S. The bank is waiting for approval on its acquisition of First Horizon in Memphis, Tennessee. The deal is expected to bolster the Canadian bank's footprint in the lucrative Southeastern U.S. market.
To be sure, differences between the banking systems in Canada and the U.S. mean any stateside version wouldn't follow the exact same path. The U.S. has thousands of banks, from global powers like JPMorgan and Citigroup to community banks designed to serve specific industries. Most banking in Canada goes through a handful of large institutions, including TD.
Customers can choose between variable and fixed interest rates and spread repayments out between one- and seven-year periods. Fees will only be assessed when a payment is missed. Payments can be made on a weekly, biweekly, monthly or semimonthly basis, Canada Post said. TD will transfer loan balances directly into the accounts of approved applicants at any Canadian financial institution.
"This alliance enables TD to play a meaningful role in helping to expand access to banking to more Canadians," Michael Rhodes, the bank's head of Canadian banking, said in a statement.
Canada Post handles more than 5 million financial transactions annually, including money orders and remittances within Canada and abroad. It said it is considering the addition of more financial products and services.
NEW YORK (AP) — Key financial regulators on Friday approved U.S. Bank’s $8 billion acquisition of Japanese financial titan MUFG’s Union Bank franchise, clearing big regulatory hurdles for a deal that will push U.S. Bank closer to the size of Wall Street’s mega banks.
But in reaching those approvals, both the Office of the Comptroller of the Currency and the Federal Reserve expressed concern about the accurate growth of so called “super regional” banks like U.S. Bank, Truist and PNC Financial.
The OCC stipulated in its approval that U.S. Bank must find ways to quickly and easily sell off parts its business in cases of severe economic distress.
“In reaching this decision, the OCC carefully considered the effect of the U.S. Bank and MUFG Union Bank merger on communities, the banking industry, and the U.S. financial system,” said Acting Comptroller of the Currency Michael J. Hsu. “The OCC also took into account … how best to ensure that large banks do not become the next class of too big to fail institutions.”
Meanwhile, Fed Governors said the central bank should consider new regulations for these super-regional banks that would recognize their accurate growth in size and what risks they may now pose to the overall financial system.
The nation’s biggest Wall Street banks, technically known as globally systemically important banks, became some of the most strictly regulated institutions following the 2008 financial crisis. They are required to have so-called “living wills” to show how they would best unwind their businesses in case of bankruptcy.
While the Fed may not want to go as far as it did in putting guardrails on the mega banks like JPMorgan, it signaled that the super-regional banks are a growing concern.
“Since we know from experience that even noncomplex banks in that range can pose risks to the broader financial system when they experience financial distress, I am encouraged that the Board is seeking comment on an advance proposal to Improve their resolvability,” Federal Reserve Vice Chair Lael Brainard said.
Minneapolis-based U.S. Bank proposed buying the Union Bank franchise from MUFG in September 2021, the latest of several large mergers among similar-sized institutions. The merger wave started with the merger of two Southern banks — SunTrust and BB&T — to create Truist. PNC Financial bought the consumer banking franchise of Spanish bank BBVA last year.
Union Bank has retail branches primarily in West Coast states, with its main banking office in San Francisco. It also has commercial branches in Texas, Illinois, New York, and Georgia.
But unlike the SunTrust-BB&T merger and the PNC-BBVA merger, regulators seemed to take more time on the deal. U.S. Bank and MUFG had to extend their purchase agreement earlier this year to allow the longer regulatory approval.
The Department of Justice gave approval to the U.S. Bank-MUFG deal late last month, requiring U.S. Bank to sell off three bank branches for anti-competitive reasons.
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The Reserve Bank of India (RBI) on Wednesday announced a standard operating procedure (SOP) for interoperable regulatory sandbox to regulate newer fintech products and services falling in the ambit of more than one regulator. The move is aimed at developing a clear jurisdiction where there are overlapping areas involving multiple regulators, including the RBI, Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irdai), Pension Fund Regulatory and Development Authority (PFRDA).
Under the framework, the dominant feature of the product will determine the influence of the regulator and the regulator under whose jurisdiction such feature will be the principal regulator and others will be associate regulators. The dominant feature will be determined based on the number of relaxations sought for the product and the type of the product.
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The initial scrutiny of the product or the service will be done by the coordination group, which is the fintech department of the RBI while detailed examination will be done by the principal regulator based on its framework. The latter will have the final say in admitting a product or service in the sandbox and other regulators will provide their inputs in 30 days.
The test design will be finalised by the principal regulator in consultation with other regulators. The fintech selected for the sandbox will seek permission of the principal regulator for relaxations before launching the product.
In cases where Sebi is involved, a fintech applicant not registered with the markets regulator will have to partner with Sebi registered entity under its norms. Separately, International Financial Services Centres Authority (IFSCA) will be the principal regulator in cases where Indian fintech is looking to launch products abroad or foreign fintechs planning to initiate products in India.
The SOP is prepared by the inter-regulatory technical group on fintech, which is chaired by chief general manager of the RBI’s fintech department and representatives of Sebi, Irdai, IFSCA, PFRDA and the central government.
A month ago, the RBI launched its fifth cohort under the regulatory sandbox, without a specific theme and has invited applications for innovative products related to its regulatory domain. A regulatory sandbox is live testing of new products or services on a pilot basis with some relaxations for the limited purpose of the testing.