Banks and their role as trustworthy partners in the context of crypto

In the second half of the year 2022, the events in the “crypto world” have overturned. In particular, the events surrounding the crypto exchange FTX have shaken the crypto world and its followers’ and investors’ confidence in this area. As a result, the security factor has come into focus when choosing the appropriate provider, which gives banks the chance to position themselves as trustworthy partners. After all, the FTX case has demonstrated very well what actually sounds absurd: there is an urgent need for a responsible party to provide access to decentralization.

The demand for investment opportunities in crypto assets may not seem acute at the moment due to the current market situation. However, recent years have shown that a so-called “crypto winter” (bear market) is always followed by a “crypto spring” (bull market). So, now, there is an optimal opportunity to invest anti-cyclically in the development of the corresponding infrastructure. Not only to be prepared for the next bull market but also in order to position in this special field as a trustworthy partner and first point of contact for its clients and not to leave this role exclusively to new market participants.


Banks should transfer their role as a trustworthy party to the “crypto world”

Banks are among the most strictly regulated institutions in the financial sector, especially regarding private clients. What is always a challenge for the financial institutions concerned, however, ultimately ensures that trust has been restored and strengthened, especially after the financial crisis in 2007. Today, banks are characterized by a high reputation, a long history, and a high level of expertise. These are crucial for maintaining the role as a trustworthy partner and offering clients secure access to investments, financing, and payment transactions.

However, the effort to fulfill precisely this role with the corresponding service offer, to support clients holistically and provide the best possible service, does not currently apply to crypto assets for many banks. There are some good reasons why banks do not include crypto assets in their advisory offering, especially regarding the requirements of MiFID II. However, an advisory or product offering in crypto assets is not essential in the first step. For positioning as a trustworthy partner, it would already be sufficient to provide pure access to trading and custody for clients who want to invest in crypto assets on their own, i.e., as a pure execution-only business. This would prevent client funds from flowing away to other market participants that can provide the appropriate access. Because the rejection by the bank will not dissuade clients from the intention to invest in crypto assets, but they will find another way to make this investment. Analogous to the traditional sector, winning back these client funds will also be challenging, even if a corresponding offering is subsequently established.

From this, we can derive four reasons why it makes sense for banks to offer access to investment in crypto assets themselves:

1) Earnings potential:

Due to the blanket loss of trust in market operators in the crypto asset space, there is an opportunity for banks to fill this created gap in the market by providing regulatory-compliant and secure access to crypto asset investments and expanding their service offerings.

2) Overview of assets and allocation:

The corresponding infrastructure allows overviewing of the amounts that clients have already invested or are investing in crypto assets and the development and redeployment of the same.

3) Next Generation:

Crypto assets are already a common component in the asset allocation of younger generations with an increasing tendency. Establishing a corresponding offer early enough to pick up these client groups already today is important.

4) Infrastructure of the future:

Access to blockchain-based infrastructures will be a fundamental component for financial institutions in the future. Whether this involves crypto assets, crypto securities, or crypto fund units or, in the future, a blockchain-based euro is irrelevant for the time being. What is important is that this access will be unavoidable.

Design options for banks to build access to crypto assets

In the execution-only business, the bank would only provide access to the trading of crypto assets and the custody of the private keys. Two components are required for this, which can be put together individually.

1) Access to a crypto asset trading venue (crypto broker, crypto MTF, crypto exchange)

2) Connection of a crypto custodian


Figure 1: Possible “partner model” for retail crypto purchases through a crypto broker and crypto custody through a third-party custodian

Depending on the final design and provider selection, the bank’s technical and regulatory implementation effort will be determined. Basically, a bank has three options to establish access to crypto assets:

a) Make:

In-house development of a crypto custody solution or use of a custody solution from a technology provider and, if applicable, application for the corresponding permission for the crypto custody business.

b) Buy:

Acquisition of a crypto custodian and use of existing permission, either as a standalone organization or integration of the crypto custodian

c) Partner:

Cooperation with a crypto custodian, i.e., “outsourcing” of the crypto custody business. In this case, the client must be in a direct contractual relationship with the crypto custodian

Since 01.01.2020, the crypto custody business in Germany has been a financial service requiring a license pursuant to Section 32 of the German Banking Act (KWG). Crypto custody business covers services related to the commercial custody, administration, or safekeeping of crypto assets or private cryptographic keys for clients. Currently, there is no harmonized regulation at the EU level for companies that relate their business activities to crypto assets. However, this fragmentation is expected to be resolved in 2024 with the implementation of the European “Markets in Crypto Assets Regulation” (MiCAR), as MiCAR allows for the passporting of permissions or licenses within the European Union.



There is already a very clear regulatory framework in which financial institutions such as banks can provide their clients with secure access to crypto assets. With a high standard of IT security and risk management, banks can also take on and establish their role as trusted points of contact in this new environment and position themselves in this area in the long term. Neither in the retail client business nor in wealth management should it be an option to leave clients exclusively to new market participants or to themselves.


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