During the World Economic Forum event in Davos, UBS Chairman Colm Kelleher spoke about cryptocurrencies and blockchain. He is very optimistic about blockchain but is looking for regulation around crypto.
“The technology’s unstoppable,” said Kelleher. “Blockchain technology will reduce huge operational friction, reduce costs and, harnessed properly, will be a very good value additive to the chain.”
While Kelleher only joined the UBS board in 2022, the bank has one of the longest histories in blockchain technology. It initiated the Utility Settlement Coin, a settlement token backed by central bank reserves. That morphed into Fnality, now owned by 17 institutions and recognized as a systemically important payment system in the UK. It plans to launch this year.
However, Kelleher has reservations about cryptocurrencies. He believes that in its current form, banks “cannot possibly justify selling that product.” And he was grateful that cryptocurrencies didn’t become systemically important during the latest crypto boom.
“We did have investors who did want to invest in coinage,” said the UBS Chairman. “And we had to draw a line on what was suitable for those investors. What is our fiduciary duty? And by the way, what is our compliance responsibility? And we had not answered those things.”
“And in many ways I think we dodged a bullet because this thing blew up very quickly. But it will come back in one form or another. And we are looking for the regulatory framework that will allow us to accommodate that for our clients.”
On a related note, when asked about what he considers the biggest risks on the horizon, he is concerned about geopolitical issues and the non-bank financial sector (NBFI). That would include crypto, but he wasn’t talking about crypto at the time.
“Banks and insurance companies are well regulated,” said the UBS Chairman. “I think they’re systemically safe, we can argue. But I do think regulators have, with respect, taken their eye off the ball in terms of the non-banking NBFI sector. And they’re looking at risks emanating from that through a banking lens rather than through an overall control lens.”
Outside of crypto, UBS has embraced blockchain in a big way. Last November, it issued probably the largest blockchain bond of CHF 375 million ($410m) on the SIX Digital Exchange (SDX) with a dual listing on SIX but the entire issuance natively on the blockchain.
It is also a participant in Fnality, the Broadridge DLT repo offering, HQLAX DLT collateral management network and the FundsDLT blockchain distribution platform, amongst other initiatives.
