Banks Investing Efforts in Digital Asset Custody Business

KB Kookmin, Shinhan, Woori, NH Nonghyup Bank Enter Custody Business
New Revenue Source Draws Attention... Expectation of Fee Generation

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] Commercial banks are increasingly entering the ‘custody’ business that stores digital assets such as cryptocurrencies. Although the legal risks are not as significant as issuing real-name accounts, this business can create new fee revenue streams. It is also analyzed that this move is to proactively respond to blockchain technology applied to cryptocurrencies and central bank digital currencies (CBDCs).

According to the financial sector on the 1st, KB Kookmin, Shinhan, Woori, and NH Nonghyup Banks have entered the digital asset custody business. Under current law, banks cannot directly engage in digital asset custody services, but they participate by establishing joint ventures with blockchain companies or investing in shares.

Custody is a service that safely stores cryptocurrencies such as Bitcoin and Ethereum and charges fees in return. Besides cryptocurrencies, it can also store securities tokens (STOs) based on real assets such as non-fungible tokens (NFTs) and real estate.

This is similar in many ways to the banks’ basic business of managing customers’ financial assets in custody. From the banks’ perspective, there is great interest because they can generate fee income related to cryptocurrency storage and investment returns using these assets.

The most proactive institution in the custody business is Nonghyup Bank. On the 27th of last month, Nonghyup Bank made a strategic equity investment in Cardo, a custody-specialized company. Cardo is currently preparing to launch custody services after obtaining Information Security Management System (ISMS) certification. The goal is to establish a business foundation early and play a leading role in the digital asset market.

KB Kookmin Bank established the joint venture Korea Digital Asset (KODA) last November together with Hatch Labs and Hashed and is the first in the banking sector to provide digital asset custody services. Major clients include game company Wemade.

Shinhan Bank participated in the digital asset management specialized company Korea Digital Asset Custody (KDAC) through a strategic equity investment. KDAC’s clients include NXC, the holding company of Nexon, and Alpha Asset Management. Woori Bank also created the digital asset custody company ‘D-Custody’ together with Coinplug.

The reason banks are actively entering the digital asset custody business is largely due to the growing market size of cryptocurrencies and others. More companies are showing interest in cryptocurrencies as new investment destinations or inflation hedges (purchasing stocks, land, commodities, etc., to prepare for currency value decline). However, companies cannot directly use cryptocurrency exchanges and must store assets in hardware wallets, with bank vaults currently considered the safest storage locations.

It is also analyzed as a measure to increase understanding of blockchain, a core future technology. Banks are preparing in advance for the widespread use of blockchain technology across the entire financial sector in terms of security and transparency. A financial sector official said, "In the custody business, there is less burden from money laundering issues from the bank’s perspective, and it can be a new source of fee income. It is also a good opportunity to acquire technology through collaboration with blockchain companies."

Meanwhile, the Korea Institute of Finance recently stated in a report that digital asset custody services should be noted to diversify banks’ non-interest income. According to the report, Deutsche Bank, Germany’s largest bank, has applied for a related license with local authorities to prepare to provide digital asset custody services to hedge funds and asset management companies.

This content was produced with the assistance of AI translation services.