Standard Chartered and Northern Trust partner to launch cryptocurrency custodian for institutional investors

Landmark move in the institutional crypto space as custodians collaborate to solve missing piece of the puzzle for investors eyeing the likes of Bitcoin, Ethereum and Litecoin.

By Jonathan Watkins

Two of the world’s largest securities services providers have collaborated to launch Zodiaan institutional-grade custody solution for cryptocurrencies.  

Standard Chartered and Northern Trust said they expect to begin operations in London in 2021 subject to registration with the UK Financial Conduct Authority (FCA), all applicable regulatory filings and customary closing conditions.

The launch represents a landmark moment for both incumbent custodians and the burgeoning cryptocurrency market alike, as the move could help facilitate institutional involvement in certain digital assets such as Bitcoin. Zodia will enable both transaction and settlement activities. 

In a statement, the two custodians said that Zodia combines the traditional custody principles and expertise of a bank with the agility of a FinTech company to provide an infrastructure that meets the high standards and expectations of institutional investors through a platform that adapts to the changing needs of clients and the market.  

“The introduction of digital custody backed by the know-how and experience of global banks is a breakthrough in the evolution and support of institutional cryptocurrency markets,” said Pete Cherecwich, President, Corporate & Institutional Services, Northern Trust.

Zodia’s robust capabilities will make it possible for institutional asset owners, family offices and asset managers to invest in a range of cryptocurrencies as interest continues to grow in these emerging and innovative financial instruments.”

At launch Zodia will provide custody services for the most-traded cryptocurrency assets – Bitcoin, Ethereum, followed by XRP, Litecoin, and Bitcoin Cash – which represent the majority of client demand and activity, accounting for approximately 80% of the total assets – equivalent to $395 billion – traded on the top cryptocurrency exchanges. 

Zodia was established to address the need for a cryptocurrency custodian that truly understands custody,” said Maxime De Guillebon, Chief Executive Officer of Zodia, and part of SC Ventures, Standard Chartered’s FinTech unit. We combine the risk management, compliance, governance and security approach of a regulated financial institution with the cutting-edge innovation of crypto asset and key management technologies. By doing so, we enable operational efficiency and speed of transaction without compromising on security or reliability.”  

The launch of Zodia brings to end a long-awaited solution from an incumbent custody provider, though few would have predicted that it would come through a collaboration between two such organisations.   

Both have been vocal in the past about venturing into crypto asset servicing and the launch comes at a time when the price of Bitcoin has reached record highs.  

Crypto exchanges that also have a free custody offering, such as Coinbase and BitGo, have dominated this space, but in October last year, Fidelity Investments rolled out a crypto custody service dedicated to hedge funds, family offices, and financial advisors.  

Traditional providers, such as State Street and BNY Mellon, have both made very gradual moves into servicing crypto assets but have avoided launching a full-fledged custody offering. 

Various pieces of research have highlighted the growing demand from institutional investors, including a report of more than 500 asset managers, owners and insurers, conducted by State Street at the start of the year, which showed a quarter of firms said they are investing in digital currencies or related products such as bitcoin futures. This is up five-fold from a year ago, when just 5% of respondents said they were investing in crypto assets. 

In addition, Global Custodian conducted its own research of endowment funds back in 2018, which showed the vast majority had been allocating to crypto-related investments throughout and planned to continue their activity in the next year despite lingering concerns over regulation, volatility and liquidity. 

According to a survey of 150 endowments94% said they had invested in crypto-related initiatives in the past 12 months.