This blog follows our introductory Digital Assets 101 blog and highlights a selection of key considerations for wholesale banks looking to develop their digital assets strategy, with a particular emphasis on regulatory considerations.

The digital assets market has developed at pace in recent years. Between early 2020 and November 2021 the outstanding value of digital assets grew around tenfold, peaking at $2.9 trillion, before falling back to around $900 billion as of June 2022 [1]. This was the result of a large fall in value of various digital assets and some stablecoins being unable to maintain their price peg.

The recent market volatility in digital assets markets and the broader macro-economic uncertainty may slow the rapid growth of digital assets as market confidence in digital assets and investor risk appetite lowers. However a clearer regulatory landscape – including a tailored policy framework to be explored as part of regulatory financial market infrastructure sandbox trials, a framework around stablecoins, followed by the issuance of CBDCs – is likely to support the growth of a regulated digital asset ecosystem, as firms and markets look to harness the cost and operational efficiencies of issuing and trading digital assets.

Deloitte’s EMEA Centre for Regulatory Strategy has published a new paper intended to help wholesale banks operating in the UK and EU to develop a digital assets strategy in the context of the evolving regulatory landscape. You can access the full paper below.

The paper explores the key considerations, both strategic and regulatory, for firms looking to build out their digital asset business. To bring these to life, we set out illustrative use cases based on a bank offering three digital assets services: custody, trade execution and lending. For each service we:

  • highlight existing EU and UK regulation and emerging proposals;
  • highlight the significant operational and business challenges to developing and executing a digital assets strategy; and
  • set out key implications for a wholesale bank building its digital assets strategy.

Below we discuss a selection of key considerations contained in the paper. 

Choosing what digital assets products and services to offer

A successful digital asset strategy will likely draw on several key considerations, including how digital assets interact with the bank’s existing strategy for “traditional” assets. Firms should conduct a realistic assessment of their strengths and weaknesses to help determine which products and services to focus on. For example, a bank operating a large “traditional” custody business could start by offering digital assets custody, leveraging expertise and trust safeguarding traditional assets.

Our paper focusses on three services that we see our clients and the markets exploring from a strategic perspective:

  • Custody – the management of digital assets and private keys used to execute transactions. Some UK and EU banks are seeking to develop a digital assets custody business [2,3]. It is a core component of the digital assets ecosystem, enabling firms to offer additional products and services.
  • Trade execution – offering broker services for digital assets spot trading.
  • Lending – offering credit solutions to institutional investors.

Below are some key implications to consider for these services:

Navigating the emerging EU and UK digital assets regulatory landscape

Firms building their digital assets strategy will need to navigate the emerging policy and regulatory landscape. Over the next five years we expect significant regulatory developments in the EU and UK digital assets regulatory frameworks that will have a direct impact on a firm’s digital asset strategy.

Firms building their digital assets business now will likely move before the finalisation of these frameworks, meaning their business, risk and compliance strategies need to be dynamic as new requirements and expectations emerge. Looking across the emerging regulatory landscape we highlight three key regulatory considerations for banks’ digital asset strategies.

All the areas above are discussed in greater detail in our paper, accessible below: Building a digital assets strategy for a wholesale bank in the EU and UK: key considerations to navigate the fast-moving market.