In part two of our conversation with Richard Shade, Head of Custody at Bequant, we discuss institutional investors’ attitudes toward digital currency and blockchain, what Bequant believes the barrier to adoption for institutional investors is, the misunderstandings about blockchain and digital currency that institutional investors have, how regulation plays a role in these industries, and what Bequant has in store for the future. Read part one of our interview here.
How does Safequant support or encourage institutional adoption of digital assets?
We encourage all market participants to make informed decisions when evaluating potential investments, and digital assets are no different. That’s not to say we offer investment advice, because we don’t, but it can only help our industry for more institutions to be educated and aware of the opportunities digital assets offer.
Is institutional adoption of digital assets creating more awareness of custodians and the need to secure assets?
I think the awareness is already there. Much of the hype in 2018/2019 was around new custodians being built, and that has since shifted to prime brokerages (we were first!).
Institutional clients know they have to custody assets. They need to de-risk their back office by securing assets at custodians. The problem is, they also face issues with capital efficiency. Most exchanges want the assets on exchange to allow clients to trade. This carries risks (or it would appear to, to a Risk Committee). Clients need to be able to trade against assets (collateral) by securing it in a safe place, which the different exchanges or brokerages have legal arrangements/settlement access over (i.e. like Safequant and Bequant Pro). I think that’s the important aspect institutions are becoming aware of.
What do you see as the biggest barriers to institutional adoption of digital assets at the moment?
I think most of the barriers have been removed. However, a huge hurdle to overcome is still centered on regulatory and legal certainty. Big institutions have long and detailed internal processes to go through to trade new products or on new exchanges. They have to navigate risk committees, regulators, legal frameworks, and IT integrations. All of which take time. If there are questions around regulatory or legal certainty, then their committees and systems will say no. So, I welcome new regulations from all jurisdictions. The more certainty and clarity we have, the bigger our market grows. While it might mean some players drop out and more work for us in the infrastructure businesses, it can only be a good thing.
How long has Safequant custodied Bitcoin SV (BSV)? And why was the decision made to custody BSV?
We have custodied BSV since the launch, a decision based on customer demand. It’s an important coin in the digital assets landscape and we’d be remiss to not have it integrated on our platform.
What do you believe is the biggest misunderstanding that institutional investors have regarding custodial services for digital assets?
I am not sure if institutional investors have misunderstandings about custody. I think the most important things they need to understand when choosing a custodian, are the security aspects, can the coins be traded against with other exchanges/brokers and to ensure that they retain legal ownership of the coins (through a robust legal agreement and segregated funds).
In your opinion, how important is regulation to institutional investors in the custody of digital assets?
I believe regulation is important and it’s great to see the European and U.S. regulators making various changes and issuing consultations. I would love it to be quicker so we all know what type of field we are playing on but, here at Safequant (and at the wider Bequant level), we operate as if we are already regulated, with industry standard KYC/AML procedures and processes. I don’t think the lack of regulation stops clients from choosing a custodian.
What is next for Safequant?
We are about to release a new version of the interface/API that allows us to custody many more coins, which is exciting. We have also completed the FCA registration (as part of the AMLD5 regulations) and are going through that process. I am also working through an ISO27001 certification for the custody business to further prove to clients how important their information is to us. Finally, I think despite COVID and the impact it has had on financial services (and the wider world in general), our industry is continuing to grow and improve all the time. It’s a really exciting place to be, despite the slightly boring nature of custody (which is exactly what it should be!). Innovation and new ideas are abundant, and with the introduction of our prime broker, we are well positioned to help the market grow.
Make sure you tune into CG Live on September 30th to watch Denis Vinokourov, Head of Research at Bequant, participate in The Future of Banking, Financial Products & Blockchain panel. If you have not already registered for CG Live or are looking for the full agenda, you can find more information here.
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
