New Crypto Regulations In Hong Kong See Growth In Demand For Crypto Custody Service

Early this month, Hong Kong’s securities regulator unveiled new rules for the cryptocurrency sector. In particular, the rules were developed for taming manipulation, abuse and risk of hacking in the sector. Part of the rules involved use of crypto custody service to protect investors’ assets such as Bitcoin (BTC) and Bitcoin Cash (BCH).

Utilizing services of the custody providers will guarantee security for the assets under an exchange’s control. In this light, custody providers are finding themselves facing new opportunities to offer services. According to the South China Morning Post (SCMP), InVault is one of the companies taking advantage of the new regulations.

Trust license

In an interview with the SCMP, Kenneth Xu, founder and chief executive of InVault, predicts the custody business will flourish. According to him, security is increasingly taking centre-stage in conversations about cryptocurrency.

Particularly, the custody business will need to interact with clients under a trust licence. That is to say that the relationship is on a confidential level which reduces chances of security breaches.

“We believe that globally, custodians for cryptocurrency assets will be regulated and operated under a trust licence,” Xu said during the interview.

Cryptocurrency custody entails the storage of important details of crypto holders by third parties. Particularly, the third party will store the private keys belonging to the client. Basically, the company will store the details in a physical vault similar to the one utilized by banks.

Crypto custody service to involve insurance

The need for such services arises from the fact that it is virtually impossible to memorize the private key. Also, storing the keys on platforms accessible by hackers exposes them to risks.

To increase the guarantee for security, crypto custody service providers have to acquire trustee licenses. In this case, Xu believes “trustees will play an increasingly significant role globally as a regulated conduit linking the cryptocurrency world with the formal financial system.”

Further, SCMP notes that the custody trustees will need to get insurance for their services. Incidentally, the insurance coverage will make part of the custody services.

However, Xu said: “The biggest challenge for insurers today is how to accurately measure the risk profile of a custodian, and its internal systems, to price the cryptocurrency insurance premium accordingly.”

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