HSBC launching custody service for tokenized securities

It's the latest financial institution to eye a slice of the fast-growing digital assets safeguarding space.

HSBC Holdings Plc plans to offer institutional clients a custody service for digital assets such as tokenized securities, the bank’s latest move in the new area of finance.

HSBC will work with Ripple Labs Inc.-owned technology firm Metaco on the safekeeping services, which it expects to go live in 2024, it said in a statement on Wednesday.

The offering will complement HSBC’s platform for digital assets issuance, called HSBC Orion, and the bank’s system to issue tokenized gold which it launched last week. The latter uses distributed ledger technology to represent ownership of physical gold held in its London vault through digital tokens.

HSBC is the latest large financial institution to move to commercialize blockchain-based applications, after years testing the technology at the core of cryptocurrencies. JPMorgan Chase & Co went live with its first collateral settlement for clients using blockchain last month, while Euroclear launched a platform for issuing traditional securities using blockchain.

For almost a decade, banks, asset managers and market infrastructure providers have been investing millions of dollars in adapting blockchain with the aim of streamlining some of their more complex processes and reducing costs. So far the industry has yet to reap any large-scale benefits from these efforts, though the latest launches may prove to be a testing ground for the technology’s utility.

Custody, in particular, has become a hotbed of activity from large players, creating opportunities for the sector’s startups, while also underscoring the challenges smaller firms face in partnering with big financial companies. San Francisco-based Ripple—which agreed to acquire Metaco in May— has estimated that the crypto custody market for institutions alone could reach almost $10 trillion by 2030.

“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,” Zhu Kuang Lee, chief digital, data and innovation officer, securities services at HSBC said in a statement.

Citigroup Inc, which was building its digital-assets custody offering in partnership with Metaco, started informal talks earlier this year with other providers and was reviewing its partnership with the firm. State Street Corp. in March said it ended a licensing agreement with crypto custody firm Copper.