While incumbent banks stay on the sidelines when it comes to offering crypto services, BBVA is giving its Swiss clients opportunities to invest and experiment with decentralised finance.

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Not many banks in Europe are engaging with cryptocurrencies, even though many of their customers are. However, BBVA, through its global private banking arm in Switzerland, is one of the few that are actively engaging, experimenting with different protocols in the market and educating itself, as well as its clients.

“When we realised how strong blockchain technology was a few years ago, we decided to analyse where the potential business opportunities were for the BBVA group and BBVA Switzerland, and, even more crucially, how we can put these opportunities in the hands of our customers,” says Alfonso Gómez, CEO, BBVA Switzerland. “We have the responsibility to create these new paths of investments.”

BBVA Switzerland’s crypto-asset service, including trading and custody, became operational for all customers in June 2021. It started with bitcoin and added ether to the investment portfolio at the end of the year. The bank is not providing cryptocurrency trading advice, solely execution.

Despite the onset of what many are calling ‘crypto winter’, with bitcoin dropping 54.5% and ether down 66.8% in value between January 1 and June 26, according to data from CoinDesk, Mr Gómez remains bullish and emphasises the great growth potential of the market. “Customers are in a learning process, as we are, and are dealing much more today than six months ago. Likewise, we have almost double assets under management in the crypto space than we had six months ago, even though the market has gone down almost 40%,” he says.

The bank is working with Metaco, a software company supporting the banking adoption of digital assets, mainly through custody infrastructure. Founder and CEO, Adrien Treccani, says that many banks’ attitude to cryptocurrencies shifted in 2020.

“The past decade, from 2010 to 2020, was a period for early adopters, fintechs and start-ups, which were looking for new opportunities without much thought about compliance, security or good practices. But in 2020, after the first peak of the Covid-19 crisis, we have seen a rush towards blockchain technologies from the largest Tier 1 banking institutions, with BBVA being a good example,” he says. Just last week, the company announced a collaboration agreement with Citi to develop and pilot digital asset custody capabilities.

Mr Treccani believes that trend will consolidate over the next three years. He says, “In 2025, we predict that all of the usual suspects in the global custody markets reaching scale, ensuring that they are the de facto custodians for both institutional and retail clients. Smaller banks will follow once they see the largest players moving in and will probably even rely on the services provided by large players, like sub-custody relationships.”

According to Mr Treccani, one of the reasons that the big players are interested is that they see what decentralised finance (DeFi) could mean for them. “Banking is built on four pillars: trust, liquidity, customer base and regulations. The first three pillars are under threat because of DeFi: it removes the need for trust because of blockchain; it pools liquidity within the blockchain around standardised protocols; and the new generation of customers prefer going on OpenSea to trade non-fungible tokens than connecting to their e-banking platform.

“All of the largest institutions know that they need to start capturing these new trends and ensure they will be able to serve clients by offering a state-of-the-art security, compliance, etc,” he says. “The last pillar – compliance and regulation – is going to become even more of a unique selling point for banks, as regulators begin regulating DeFi and cryptocurrencies even further.”

Importantly for BBVA, the regulatory environment in Switzerland is more advanced than in the rest of Europe and the world, which is why the bank is operating only from the Swiss jurisdiction; however, it can serve and onboard customers from all EU countries, as well as other countries in Latin America and Asia-Pacific. “Switzerland is proactive. Finma [Swiss Financial Market Supervisory Authority], for example, is always willing to help.” says Mr Gómez. “And the regulators are quite comfortable when traditional banks such as BBVA approach them and say that we are thinking about this kind of technology.”

Mr Treccani adds that the country is “extremely innovative”, with talent, good universities and a passion for this field. “However, our banking industry is far from being the fastest mover. BBVA is an exception, but the large bank banking names in Switzerland are still at the innovation phase,” he says. “So, while Switzerland is the core of the innovation for crypto-native start-ups, it’s not the pole of growth in the regulated industry.”

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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