Virtual Asset Service Providers (VASPs) are continuing to disrupt and mature and are eyeing opportunities to scale up and institutionalise within the Financial Services (FS) landscape, as this is where the real potential lies for growth.

Regulatory bodies are now taking the industry seriously, while institutional investors are shifting from keeping a watchful eye, to actively engaging with the most professional players. In fact, some established financial services institutions are taking things a step further and are preparing their own virtual assets service offerings.

This KPMG report considers the recent evolution of the industry and looks ahead to the operational changes that VASPs need to implement to succeed at institutionalisation. Success will be dependent on VASPs achieving superior customer engagement, regulatory compliance, scalable and stable operations, and robust governance.

By delivering an optimal customer engagement experience, VASPs can streamline participation for institutional players. Drawing on evolving regulations, they can increase security through strict customer onboarding and Know Your Customer (KYC) programs, while through Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) practices, they can build trust.

Reliable policies and procedures will help prepare VASPs to scale and meet the expectations of large institutions. Embracing automation technology for ongoing monitoring, review and improvement will provide assurance to regulators, who are evolving their risk appetite in each jurisdiction.

As the industry and its ecosystem grows, custody and safekeeping services will emerge as a prerequisite of institutional investment. VASPs need to offer secure custody solutions of their own or ensure application programming interface (API) integrations are in place for seamless connectivity to third party custody providers.

Finally, strong governance and risk management must start at the top with experienced leadership, supported by governance bodies and sophisticated risk management frameworks across customers, vendors and internal staff.

If VASPs surge ahead in these areas, we see significant potential for them to deliver to institutional demand, and forge long lasting value propositions.

Whether a ‘native VASP’, or a traditional financial services organisation moving into the space, collaboration is the key to success. Rather than a ‘build it yourself’ approach, the best results will come from a strong and scalable ecosystem, together shaping and seizing the opportunities in this fast-growing market.