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With increasing interests from high-net-worth and institutional clients in cryptocurrencies, Fusang Investment Office, an asset manager focusing on Asian private family offices, is preparing to launch in Hong Kong a crypto-custody service Fusang Vault.
Expected to come on stream in the fourth quarter, chief executive officer Henry Chong said as with a custodian bank in conventional finance, an independent third party was needed in the digital token business which can hold assets on behalf of the clients, and audit these digital assets periodically.
Comparing digital assets to financial bonds, Chong noted the increasing need to provide an independent third party that would hold clients’ crypto assets, just like a demand for custodian bank services in conventional finance.
Chong stressed that since holding digital assets lacks the registration of ownership data, a crypto-custodial service is of “paramount importance”:
“Digital assets are akin to bearer bonds, whereby whoever that is holding the security is presumed to be the owner and there is no registration of ownership information of the security. Hence, the way we keep digital asset [sic] secured is of paramount importance.”
Fusang’s CEO added that the firm is already working with insurance companies to safeguard clients’ digital assets, without specifying features of the upcoming Fusang Vault service.
According to its website, the Fusang Investment Office is regulated by the Monetary Authority of Singapore and licensed by the Securities and Futures Commission of Hong Kong.
In early July, one of the world’s largest cryptocurrency exchanges, Coinbase, launched a crypto-custodian solution targeting institutional clients. Coinbase Custody is operated through an independent member of the U.S. Financial Industry Regulatory Authority (FINRA) in compliance with the U.S. Security and Exchange Commission (SEC).
Jolyon Ellwood-Russell, a partner at Simmons & Simmons, said as the custody of crypto assets was not regulated, users would have to rely solely on the terms and conditions in the service contract in the event of losses.
However, he said there were still a lot of legal issues not reflected in the documentation.
“For example, in what capacity are the custodians holding the assets? Are they holding them as a bailment, that is, a trust, so the assets are outside the estate of the custodian on an insolvency.
“Just having segregated accounts does not automatically mean that on an insolvency the investors assets will be protected or recoverable from a receiver or liquidator,”