HSBC Announces Plans to Launch Digital Asset Custody Service in Partnership with Metaco

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HSBC Holdings aims to introduce a custody service for digital assets, catering to institutional clients seeking exposure to tokenized securities.

The global bank will offer the new service in collaboration with Metaco, a technology firm owned by Ripple Labs, according to a Wednesday report by Bloomberg. 

The upcoming custody offering, expected to go live in 2024, will complement HSBC’s existing digital assets issuance platform, known as HSBC Orion.

Just last week, the bank launched a system for issuing tokenized gold, which uses distributed ledger technology to represent ownership of physical gold stored in its London vault through digital tokens.

HSBC’s foray into blockchain-based applications follows a trend among major financial institutions seeking to commercialize this technology after years of testing its potential in the realm of cryptocurrencies.

JPMorgan Chase & Co recently implemented its first collateral settlement for clients using blockchain, while Euroclear introduced a platform for issuing traditional securities via blockchain.

For nearly a decade, banks, asset managers, and market infrastructure providers have invested significant resources in adapting blockchain to streamline complex processes and reduce costs.

However, the industry is yet to realize substantial benefits from these efforts.

The latest launches, including HSBC’s upcoming custody service, may serve as a testing ground for assessing the utility of blockchain technology.

Crypto Custody Market To Reach $10 Trillion by 2030

Custody services have emerged as a focal point for major players in the industry, offering opportunities for startups while underscoring the challenges faced by smaller firms seeking partnerships with established financial institutions.

Ripple, which agreed to acquire Metaco in May, estimates that the crypto custody market for institutions alone could reach nearly $10 trillion by 2030.

Zhu Kuang Lee, Chief Digital, Data, and Innovation Officer for Securities Services at HSBC, noted that the bank has witnessed growing demand for custody and fund administration of digital assets from asset managers and owners.

“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,” Kuang Lee said.

Notably, Citigroup was developing its digital custody offering in partnership with Metaco but has reportedly entered informal talks with other providers and is reviewing its collaboration with the firm.

Similarly, State Street Corp. announced in March that it terminated its licensing agreement with crypto custody firm Copper.

HSBC, short for Hongkong and Shanghai Banking Corporation, is one of the world’s largest banking and financial services organizations.

Just last week, it was revealed that the bank completed the Hong Kong Monetary Authority’s CBDC pilot program in collaboration with Visa and Hang Seng Bank.

This pilot was part of the “Digital Hong Kong Dollar” program organized by the HKMA, which was initiated earlier this year in May and was the first use case globally to utilize tokenized deposits for interbank B2B self-transactions and cross-chain transactions.

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