🥔 Is risk just a hot potato?

📰 Welcome to the Newsletter

Good morning, at Global Custody Pro we track what's happening in global custody, clearing, payments, and digital assets. We filter through industry news to bring you what matters most in clear language.

Risk management often resembles a game of hot potato, with hazards being mitigated rather than fully resolved, while regulatory reforms worldwide chase diminishing returns. Each new layer of control and oversight yields less benefit than the last, potentially creating new vulnerabilities through added complexity.

The paradox is that our intensive preparation for known risks - shaped by past crises and current fears - may leave us blind to emerging threats that don't fit established patterns. This is like fighting the last war, and being unprepared for changes in technology.

As we approach the Christmas season, this pattern invites reflection: perhaps the next major disruption will emerge not from the risks we're all watching, but from an unexpected quarter that our carefully constructed defensive mechanisms never anticipated. Reply to this email with what you see as potential risks in 2025.

🌏 Global Custody News

The Bank of England's Deputy Governor said on Wednesday that while 2024 saw relative financial stability, the growing dominance of hedge funds and other non-bank institutions in core markets poses new risks to the system. Speaking at OMFIF, he highlighted increased hedge fund activity in gilt trading and announced plans to launch a new Contingent NBFI Repo Facility in early 2025, designed to provide emergency liquidity directly to pension funds and insurers during severe market stress.

So what? The development of a direct lending facility for non-banks marks a significant shift in central bank policy, recognizing that the traditional model of providing liquidity through banks is becoming insufficient as market structure evolves. With non-banks now accounting for half of UK financial assets and hedge funds becoming major players in government bond markets, the Bank of England is effectively creating a new form of backstop for an increasingly important but potentially volatile sector of the financial system. The kicker? The names of those who use these facilities will remain top secret to maintain financial stability.

Source: Speech Transcript

Financial technology firm Airwallex reported strong growth across Asia Pacific in Q3, with regional revenue up 83 percent year-on-year and transaction volume rising 49 percent, while global revenue increased 73 percent and global transaction volume grew 60 percent. The Melbourne-founded company expanded its startup support program to multiple markets, launched its Yield investment product in Australia, and rolled out its Spend management suite globally, while processing over US$100 billion in annualized transaction volume and surpassing US$500 million in annualized revenue run rate in August 2024.

So what? The strong performance of Airwallex, particularly in the APAC region, indicates the growing demand for modern financial infrastructure that can support cross-border business operations. The company's expansion of services beyond basic payments into areas like startup support, yield products, and spend management suggests fintech platforms are increasingly becoming full-service financial operating systems for businesses, challenging traditional banking services. This growth trajectory, coupled with their pledge of 1% equity (US$56 million) to philanthropic causes, positions them as a significant player in the ongoing digital transformation of global business banking and payments.

Source: Press Release

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🚀 Digital Asset News

The Cambridge Centre for Alternative Finance (CCAF) has published a report entitled “Wholesale Central Bank Digital Currencies: Approaches, Implementation Strategies and Use Cases”. It finds that central banks and market players have made progress understanding wholesale CBDC implementation but face hurdles in defining standards, technology choices and practical deployment methods, according to industry research. Key challenges include selecting infrastructure amid competing public and private initiatives.

So what? The findings suggest the financial sector needs clearer roadmaps and stronger public-private coordination to advance digital currency projects, while business cases require deeper analysis to justify significant infrastructure investments needed for tokenized markets. The challenge here is that customer choice about whether they prefer stablecoins or CBDCs is still falling squarely with stablecoins with USDT and USDC dominating stablecoin issuance and use.

Source: CCAF Report

Circle and Binance announced a strategic partnership on December 11 that will expand USDC availability across Binance's platform and see Binance adopt USDC for its corporate treasury, with Circle providing technology and liquidity support to Binance's 240 million users.

So what? This partnership marks a significant shift in the stablecoin landscape, potentially strengthening USDC's position against market leader Tether (USDT). The move is particularly notable given their previous decision to end its own stablecoin BUSD last year suggesting a strategic realignment in the crypto exchange's stablecoin strategy as regulatory scrutiny of digital assets intensifies globally.

Source: Circle Press Release

A consortium of major U.S. financial institutions has completed a proof-of-concept study demonstrating how shared ledger technology could enable simultaneous 24/7 settlement of multiple assets including tokenized bank deposits and Treasury securities, potentially addressing inefficiencies in current siloed systems.

So what? The successful test highlights a significant push by Wall Street to modernize its aging settlement infrastructure amid growing competition from crypto and fintech firms. While previous blockchain initiatives in finance have often struggled to gain traction, this project's inclusion of major banks, SWIFT, and the New York Fed as an observer suggests the industry may be reaching a tipping point in adopting distributed ledger technology for traditional finance. However, widespread implementation would still require regulatory approval and significant investment in new systems. And enormous relaxation of risk appetite inside the heavily regulated sector, so perhaps not so much.

Sources: SIFMA Press Release | Business Report | Technical Report | Legal Report