DZ Bank is taking the next step to enable the processing and custody of crypto securities and cryptocurrencies for institutional clients. As announced by the bank on Thursday, it has now launched its long-planned platform for the processing and custody of digital financial instruments for institutional clients. The bank had already communicated these plans in the summer of last year.

According to their own statement, the central institution of the Volksbanken Raiffeisenbanken Cooperative Financial Network is now one of the first banks to offer a blockchain-based offering for institutional customers. To operate the platform itself, the bank has hired more than a dozen employees in the IT, Operations, and Compliance departments. "We expect that within the next ten years, significant portions of the capital market business will be conducted through infrastructures based on Distributed Ledger Technology (DLT)," says Holger Meffert, Head of Securities Services & Digital Custody, in a statement.

However, the DZ Bank cannot yet fully utilize the platform's potential because it does not have all the necessary licenses. Currently, the bank can only custody crypto securities, as they fall under the Electronic Securities Act (eWpG). According to the bank, it has already subscribed to a crypto bond from Siemens in partnership with Union Investment. To be able to custody cryptocurrencies like Bitcoin or Ethereum for customers, a cryptocurrency custody license is required. The bank applied for this license with the German financial supervisory authority BaFin in the summer, but approval is still pending.

The DZ Bank is not alone in this; there is a long queue of banks waiting for the license. Both Deka and Deutsche Bank have been waiting for BaFin's cryptocurrency custody license for some time. According to media reports, Donner & Reuschel has already withdrawn their application. As per BaFin's register, the only German bank currently holding a cryptocurrency custody license is Hauck Aufhäuser Lampe, which acquired the license in 2021 through the acquisition of Berlin-based cryptocurrency custodian Kapilendo Custodian.

In addition to the cryptocurrency solution for institutional investors, DZ Bank is also working on an offering for the custody of cryptocurrencies for retail customers. The originally planned pilot project for this year is likely to start in the coming year since the bank, according to media reports, has separated from DWP Bank in this project and is in discussions with new partners. The Börse Stuttgart is considered a favorite, as its subsidiary Blocknox has been given a custody license in March.

Since January 2020, banks and financial service providers in Germany require BaFin's permission to custody cryptocurrencies for customers. This business is comparable to the custody of traditional securities, with the crucial difference that the bank does not hold a security in a custody account but rather manages and safeguards the private keys of the encrypted cryptocurrency (coins) in a digital wallet. Whoever possesses the private keys controls the coins. Managing digital keys is highly sensitive and places specific demands on IT security.