BANKS MUST ESTABLISH INFRASTRUCTURE FOR DIGITAL ASSETS BEFORE ITS TOO LATE

The digital asset landscape is rapidly evolving, presenting both unprecedented opportunities and potential risks for traditional financial institutions. (c) Central Bank Digital Currency means a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank. Sec. 3.With renewed interest from credit unions, community banks, regional players, and even Wall Street giants, the message is clear: banks must establish infrastructure for digital assets before it's too late. The Trump administration is moving swiftly to reshape federal digital asset policy. On January 23, President Trump issued an executive order (Executive Order) that reverses key elements of a BidenIgnoring this shift could lead to missed opportunities, customer attrition, and ultimately, a loss of relevance in the future of finance. Having emerged as a rapidly growing asset class with renewed interest among retail and institutional investors, digital assets including cryptocurrencies, stablecoins, central bank digital currency (CBDC), non-fungible tokens (NTFs), utility tokens, security tokens, payment tokens and decentralized finance (DeFi) tokens can help banksThis isn't just about offering cryptocurrency trading; it's about reimagining banking services to cater to a generation increasingly comfortable with digital assets. Additionally, UK-based Coinshares and Germany s Deutsche Digital Assets have also made significant contributions to the development of crypto ETPs, expanding the options available to investorsBanks that proactively embrace this change can dramatically increase wealth opportunities for millions by providing secure custody, innovative investment products, and seamless integration with the burgeoning digital economy. Despite the skepticism of some market participants, digital assets and cryptocurrencies are establishing themselves as a relevant asset class. The high demand from retail customers is proving to be a challenge for regional banks if they fail to offer digital assets, customers may make their investments with other market participants.However, this transformation requires careful planning, robust security measures, and a commitment to regulatory compliance.The time to act is now, lest traditional institutions find themselves outpaced by nimble digital disrupters.

The Untapped Potential: Wealth Creation Through Digital Asset Custody

One of the most significant opportunities for banks lies in providing custody services for digital assets.Currently, many individuals and institutions struggle to securely store and manage their cryptocurrency holdings.Banks, with their existing security infrastructure and regulatory oversight, are uniquely positioned to offer a safe and reliable alternative.This not only generates new revenue streams but also strengthens customer relationships by providing a comprehensive suite of financial services.

Imagine a scenario where a bank allows its customers to seamlessly buy, sell, and store cryptocurrencies alongside their traditional investments.This convenience, coupled with the bank's established reputation for security, can attract a new generation of investors who might otherwise be hesitant to enter the digital asset space.Furthermore, banks can leverage their expertise to offer sophisticated investment products linked to digital assets, such as exchange-traded funds (ETFs) and structured notes, catering to a wider range of risk appetites.

Navigating the Regulatory Landscape: A Clearer Path Forward

For a long time, regulatory uncertainty has been a major obstacle to bank involvement in the digital asset market.However, the regulatory climate is evolving, offering institutions a clearer path to build and expand digital asset offerings.While the exact form of future regulation remains to be seen, banks should take advantage of this opportunity to develop a structured and scalable approach to crypto adoption.This includes establishing robust compliance frameworks, implementing anti-money laundering (AML) procedures, and ensuring adherence to Know Your Customer (KYC) requirements.

The U.S.Department of the Treasury and the Internal Revenue Service have already issued final regulations requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. 2025 Budget By The Minister Of Finance Mr Enoch Godongwana Budget2025This signifies a growing recognition of the need for regulatory oversight in the digital asset space, providing a foundation for further legislative and regulatory developments. Proactive, Not Reactive: Instead of waiting until a borrower falls behind, banks must leverage predictive analytics to identify at-risk accounts earlier. By using behavioral data, transaction patterns, and AI-driven insights, lenders can engage before delinquency escalates, offering solutions that prevent default and reduce roll rates onBy proactively engaging with regulators and demonstrating a commitment to compliance, banks can shape the future of digital asset regulation and secure their position in this emerging market.

Building a Secure and Scalable Infrastructure

Establishing a robust IT infrastructure is paramount for banks venturing into the digital asset space. Banks must establish infrastructure for digital assets before it s too lateThis infrastructure must be flexible, reliable, and, most importantly, secure. As we embark on 2025, it s an opportune time to reflect on the transformative events of 2025 and look ahead to this new year. The past year marked the advent of a new era for digital assets, with institutional adoption reaching unprecedented levels, driven largely by the launch of Bitcoin exchange-traded funds (ETFs) one year ago.The operational and cyber risks associated with digital assets are significant, including:

• Cryptographic Key Theft: Protecting private keys is critical to prevent unauthorized access to digital assets.
• Compromise of Log-in Credentials: Banks must implement strong authentication measures to prevent account takeovers.
• Distributed Denial-of-Service (DDoS) Attacks: DDoS attacks can disrupt banking services and prevent customers from accessing their accounts.
• Data Breaches: Protecting customer data is essential to maintain trust and comply with privacy regulations.
• Technological Outages: Reliable IT infrastructure is crucial to ensure uninterrupted access to digital asset services.

Effective IT Asset Management (ITAM) is crucial for banks to manage their ever-growing IT infrastructures accurately and efficiently. Consumer-centric evolution: Banks must modernize UPI switches before it s too late Today, UPI dominates digital payments, accounting for over 90% of transactions across urban and rural regionsITAM helps banks monitor their technology stacks, identify security risks, and meet regulatory requirements. A banking IT infrastructure needs to be flexible, reliable and secure, allowing the business to deliver a unified customer experience, achieve its goals and gain a competitive edge in the market. If the IT infrastructure isn t functioning correctly, a banking business can face connectivity, productivity and security issues.It ensures the banking IT infrastructure is functioning correctly, preventing connectivity, productivity, and security issues.

The Role of Digital Public Infrastructure (DPI)

Digital Public Infrastructure (DPI) is emerging as a critical component of the digital economy.DPI encompasses digital systems that enable countries to safely and efficiently provide economic opportunities and deliver social services.It connects people, data, and money, much like traditional infrastructure such as roads and railways. Collaboration between digital asset platforms and banks is critical to integrating digital assets into the financial system. Although many digital assets are essentially their own closed-loop ecosystems, accessing them requires the support of banking infrastructure.Banks should actively engage with DPI initiatives to ensure seamless integration with the broader digital ecosystem.

Collaboration is Key: Partnering with Digital Asset Platforms

Collaboration between digital asset platforms and banks is critical to integrating digital assets into the traditional financial system.While many digital assets operate within their own closed-loop ecosystems, accessing them requires the support of banking infrastructure. Translate from English to Portuguese (Portugal) in real time with definitionsBanks can partner with digital asset platforms to offer their customers access to a wider range of digital assets and services.

These partnerships can take various forms, including:

• Custody Partnerships: Banks can partner with specialized custody providers to securely store digital assets.
• Trading Partnerships: Banks can integrate with digital asset exchanges to offer their customers access to cryptocurrency trading.
• Lending Partnerships: Banks can partner with DeFi platforms to offer cryptocurrency-backed loans.

By collaborating with digital asset platforms, banks can leverage their expertise and technology to accelerate their entry into the digital asset market.

Consumer-Centric Evolution: Beyond Basic Crypto Trading

The integration of digital assets shouldn't be limited to offering basic cryptocurrency trading.Banks need to adopt a consumer-centric approach, focusing on creating innovative products and services that meet the evolving needs of their customers. What we are seeing now is renewed interest in digital assets from banks across the board from credit unions and community banks to midsize and regional players to Wall Street giants.This includes:

• Stablecoin Integration: For stablecoins to operate as digital cash, banks need to support their fungibility for payments. These examples demonstrate that it's possible for established financial players to successfully integrate digital assets into their offerings. The key is to start small, learn quickly, and scale intelligently.This requires a regulatory framework that ensures the money value, quality, and reliability of stablecoins.
• Central Bank Digital Currencies (CBDCs): Banks need to prepare for the potential emergence of CBDCs, which could revolutionize the way we transact and interact with money.CBDCs are a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.
• Decentralized Finance (DeFi) Integration: Banks can explore opportunities to integrate with DeFi protocols to offer their customers access to decentralized lending, borrowing, and trading services.

By embracing a consumer-centric approach, banks can create a seamless and integrated digital asset experience for their customers, fostering loyalty and driving adoption.

The Rise of Digital Disrupters: Increased Competition

The traditional banking landscape is facing increased competition from digital disrupters who are challenging the roles of traditional intermediaries and service providers. We are a digital experience, engineering, and AI empowerment firm. Our team of 1,000 practitioners in strategy, development, and design create products millions of people love to use it s likely you ve used them too.These digital natives are often more agile and innovative, allowing them to quickly adapt to the evolving needs of consumers. In our Digital Assets Policy Primer, we outlined two distinct paths that US regulatory policy could potentially take: with legislation or without legislation.Banks must respond to this challenge by embracing digital transformation and offering compelling digital asset services.

To compete effectively, banks need to:

1. Modernize their IT infrastructure: Outdated IT systems can hinder innovation and make it difficult to integrate with digital asset platforms.
2. Embrace agile development methodologies: Agile development allows banks to quickly develop and deploy new products and services.
3. Foster a culture of innovation: Banks need to create an environment that encourages experimentation and risk-taking.

Early Warning Systems: Leveraging Data Analytics

Many banks lack mechanisms to seamlessly integrate non-traditional and unstructured data into their downstream early warning analytical processes.The volume of data has been growing exponentially, making it difficult for banks to effectively monitor and manage risk. For stablecoins to operate as digital cash, legislation must focus on providing a framework that supports their fungibility for payments. The money value, quality, and reliability of a stablecoinBy leveraging data analytics, banks can identify at-risk accounts earlier and offer solutions that prevent default and reduce roll rates.

Instead of waiting until a borrower falls behind, banks must leverage predictive analytics to identify at-risk accounts earlier. Many banks lack mechanisms by which to seamlessly integrate non-traditional and unstructured data data volume has been growing exponentially into their downstream early warning analytical processes. Often, banks set up structured data warehouses or digital lakes, but these are costly to maintain and cannot handle the rising number ofBy using behavioral data, transaction patterns, and AI-driven insights, lenders can engage before delinquency escalates, offering solutions that prevent default.

Examples of Successful Digital Asset Integration

Several established financial players have already successfully integrated digital assets into their offerings, demonstrating the viability of this approach. That s what my company learned when we surveyed C-suite executives at more than 1,000 community banks and credit unions nationwide. In our report, Understanding US Bank s Annual IT SpendThe key is to start small, learn quickly, and scale intelligently.For example:

• Some banks are offering custody services for digital assets to institutional clients.
• Others are partnering with digital asset exchanges to offer cryptocurrency trading to retail customers.
• Several institutions are exploring the use of blockchain technology to improve the efficiency of payment systems.

These examples demonstrate that it's possible for established financial players to successfully integrate digital assets into their offerings, paving the way for wider adoption.

Addressing Key Concerns: Security, Regulation, and Volatility

While the potential benefits of digital asset integration are significant, banks must also address key concerns, including security, regulation, and volatility. Banks have a unique opportunity with this move to dramatically increase wealth opportunities for millions of people across the globe through custodying digital assets. They could boostAs mentioned earlier, security is paramount, requiring robust cybersecurity measures and secure custody solutions.Regulatory compliance is also crucial, requiring banks to navigate a complex and evolving legal landscape.Finally, the volatility of digital assets can be a concern for some investors.Banks need to educate their customers about the risks involved and offer appropriate risk management tools.

Frequently Asked Questions (FAQs)

Here are some common questions related to banks and digital assets:

Q: What are the main benefits for banks in adopting digital asset infrastructure?

A: Increased revenue streams through custody fees and new investment products, attracting new customers, and staying competitive in the evolving financial landscape.

Q: What are the biggest risks banks face when dealing with digital assets?

A: Cyber security threats, regulatory uncertainty, price volatility of cryptocurrencies, and reputational risks.

Q: How can banks mitigate these risks?

A: By investing in robust security measures, implementing strong compliance programs, educating customers about the risks, and collaborating with reputable digital asset platforms.

Conclusion: A Call to Action

The digital asset revolution is underway, and banks cannot afford to be left behind.The opportunities are vast, ranging from increased wealth creation through digital asset custody to the development of innovative financial products and services.While challenges exist, including regulatory uncertainty and security concerns, these can be overcome through proactive planning, robust risk management, and strategic partnerships.

Banks must establish infrastructure for digital assets before it's too late. This requires a commitment to innovation, a willingness to embrace change, and a focus on delivering a seamless and secure digital asset experience for customers. infrastructure in digital asset markets are intersecting with broad capital market trends Increased competition, including the rise of digital disrupters challenging the roles of traditional intermediaries and service providers Emergence of a bifurcated client service model, with a focus on digitization and simplification for all client typesBy acting now, banks can position themselves for success in the future of finance and solidify their role as trusted financial institutions in the digital age.

Key takeaways:

• Digital assets are becoming increasingly mainstream, and banks need to adapt.
• Custody services offer a significant opportunity for banks to generate new revenue.
• Regulatory clarity is improving, but banks need to stay informed and compliant.
• Security is paramount, requiring robust cybersecurity measures.
• Collaboration with digital asset platforms is essential for success.

Don't wait!Start exploring the possibilities of digital asset integration today and secure your bank's future. St James Town Hall People s FORUM series 2025Contact us to learn more about how we can help you navigate this exciting new frontier.