Angela Itzikowitz, Executive; Era Gunning, Consultant; and Dylan Martheze, Candidate Legal Practitioner; Banking and Finance at ENS

Discussion of digital assets tends to centre on trading, speculation and price swings. A more practical question for financial institutions is often gets missed: if these assets are to enter mainstream finance, who will hold them safely?

South African banks now have a local example to consider. Absa has reportedly become the first bank in Africa to offer digital-asset custody to South African institutional clients, including asset managers, non-bank financial institutions and corporates. The service reportedly covers safekeeping, administration and transfers, has South African regulatory approval and currently supports Bitcoin, XRP, Ethereum and USDC.

Why custody matters

Custody matters because it is far more than a back-office function. In conventional markets, custodians allow investors to hold, settle, transfer and administer assets with confidence. With digital assets, control usually depends on private keys. If a key is lost, stolen or mishandled, the loss can be immediate and difficult to reverse.

Institutional custody is therefore vastly different from retail crypto access. An individual may be content to keep assets on an exchange or in a personal wallet. An asset manager, corporate treasury or bank needs much tighter controls, covering governance, approval limits, segregation of duties, cyber security, audit trails, reconciliation, disaster recovery, insurance, financial crime and regulatory accountability.

The launch is best read as a sign that digital assets are becoming part of regulated finance. Not every institutional client will start holding crypto assets soon. What has changed is that regulated infrastructure is now being built for assets that have mostly sat outside the banking system, and other South African banks are well placed to follow.

The way the service has been set up is also instructive. It was announced in 2025 as a partnership between a South African bank and Ripple, with Ripple supplying the institutional custody technology used to store tokenised assets, including cryptocurrencies.

Other banks considering custody are likely to use a similar model. Few will build all of the technology themselves. More often, a bank will work with a specialist provider while keeping responsibility for the client relationship, governance, risk management and compliance. This opens the door to new business, but it also raises questions about outsourcing, operational resilience and third-party risk that boards and regulators will expect to be answered.

The regulatory framework

Any bank entering this space will do so in a market where crypto assets are already regulated. In October 2022, the Financial Sector Conduct Authority (“FSCA”) declared crypto assets to be financial products under the Financial Advisory and Intermediary Services Act, 2002 (“FAIS”). As a result, anyone providing financial services in relation to crypto assets may need to be authorised under FAIS, depending on what they do.

Anti-money laundering (“AML”) obligations are equally relevant. The Financial Intelligence Centre Act, 2001 (“FICA”) lists, as accountable institutions, persons who execute certain crypto-asset activities for or on behalf of clients. These include exchanging crypto assets for fiat currency or other crypto assets, transferring crypto assets, and the safekeeping or administration of a crypto asset or of an instrument enabling control over a crypto asset.

This has real consequences for custodians. A custodian does more than store an asset; it often controls the point at which value moves. Institutional clients may value exactly that. Regulators, in turn, will expect sound processes for customer due diligence, beneficial ownership, source of funds, sanctions screening, suspicious transaction reporting, transaction monitoring and record-keeping.

Cross-border questions

Banks with operations elsewhere in Africa will also be thinking about cross-border expansion, and reports suggest the first custody offering may be extended to other client groups and other African countries, subject to regulatory approval. That is attractive commercially but complicated legally. Digital assets may cross borders easily, yet the rules on custody, transfers, exchange control, tax reporting and financial crime still differ from country to country.

South Africa’s own rules on cross-border crypto activity are still being developed. Reuters recently reported that draft rules published by National Treasury and the South African Reserve Bank would, for the first time, set out when moving crypto assets across borders becomes a regulated and reportable event, including transfers from a local authorised provider to an offshore provider or to a private non-custodial wallet.

These rules would give regulated custodians an even bigger role. A bank acting as custodian could help clients and regulators see where assets are held, when they move, who controls them and whether reporting duties have been met. Custody would then serve both to protect assets and to link digital-asset markets to the regulated financial system.

What this means for the market

For asset managers, non-bank financial institutions and corporates, bank-led custody could make digital-asset exposure easier to manage in practice. Many have stayed away not for lack of interest, but because the custody, governance and compliance arrangements were unfamiliar. Banks that can match digital-asset safekeeping to the risk, audit, reporting and control standards these clients already expect may find real demand.

For the wider market, the arrival of bank custody shows that digital assets are moving from the fringes of financial services into their core infrastructure. Trading platforms and crypto-asset service providers will still matter. However, future growth may depend less on retail interest and more on whether trusted banks and other financial institutions can provide the systems institutional clients need.

The real regulatory issue, then, is not whether digital assets are speculative or innovative. It is whether the financial system can put in place the custody, governance, AML, operational-resilience and cross-border frameworks needed to support them safely.

South Africa’s first bank custody offering leaves some regulatory issues open, but it signals the direction of travel clearly. Banks and other financial institutions considering a similar service should start assessing their licensing, AML, outsourcing and cross-border positions now, because custody is likely to become a cornerstone of institutional digital-asset activity. If you have any questions about how these developments may affect your business, please do not hesitate to contact us.

ENDS