A poorly secured crypto-asset transaction can result in millions being lost within seconds. Unlike traditional bank transfers, crypto transactions are inherently unidirectional: they are only authorised by the initiator, the private key holder. Once initiated, they are irreversible and cannot be refused or cancelled by the recipient. This situation imposes unprecedented security requirements on banks venturing into crypto-assets. Some financial institutions are already successfully navigating these turbulent waters, building robust crypto offerings that satisfy both regulators and clients.
Supporting financial institutions through this transformation, I observe that the key lies in an obvious truth: crypto-asset adoption rests on two fundamental pillars. Uncompromising security and impeccable compliance. Far from being obstacles, these requirements represent the foundations upon which to build robust crypto banking services.
The Security Challenge: Beyond Traditional Banking Risks
Cryptocurrencies expose banks to unprecedented risks. At the heart of the challenge, two critical aspects emerge. On one hand, custody, which involves determining whether to collaborate with a specialised provider or handle it internally. On the other hand, private key management: ensuring we maintain control over them, that they aren't compromised, and avoiding handling errors.
Private keys constitute the central challenge. These secret codes provide access to funds on the blockchain. A pragmatic solution is to rely on specialised providers, such as Fireblocks or Taurus, who handle blockchain interactions and key management through advanced Multi-Party Computation (MPC) infrastructures, along with advanced and secure key backup and recovery mechanisms, and validation rules.
This represents a genuine break from traditional banking security. Traditional banks protect centralised databases. Crypto demands securing decentralised access points that, once compromised, can lead to irreversible losses.
Beyond private key management, crypto banking faces the same threats as traditional financial services (such as API vulnerabilities, identity theft, data breaches) but with amplified consequences. The irreversible nature of blockchain transactions imposes a new constraint: security failures cannot be corrected through traditional banking recovery mechanisms.
Multi-layered Defence: protection against external and internal threats
Effective security in crypto banking requires a comprehensive approach addressing external attacks and internal threats. External protection begins with robust infrastructure: firewalls, network segmentation, and zero-trust architectures form the first line of defence.
The security framework extends to API protection via security keys and tokens (JWT, OAuth), multi-factor authentication, encrypted communications, and functional eligibility controls that verify the legitimacy of each transaction. These measures ensure that only authorised parties can execute specific operations for designated clients.
Internal threat management presents equally critical challenges. Role-based access control (RBAC), encrypted data storage, and immutable logging systems create audit trails enabling identification of malicious activities. These mechanisms protect against internal threats while enabling comprehensive monitoring and reporting.
For end clients, security measures focus on practical protection: two-factor authentication for interface access and sensitive operations, transaction signatures for traceability. Operational risk management includes transaction limits, whitelist management, and real-time notifications that alert clients to unusual activities.
Today, this technical security is insufficient alone. It must operate within a strict regulatory framework, with the European MiCA regulation serving as the cornerstone.
Navigating the regulatory maze: MiCA and new prudential requirements
The European Markets in Crypto-Assets (MiCA) regulation constitutes an essential element for crypto banking in Europe. Since 2023, it has established comprehensive frameworks for Crypto-Asset Service Providers (CASPs). Compliance begins with CASP registration but extends well beyond initial authorisation.
For banks, a simplified procedure exists to achieve this status: a complete licensing application isn't necessary : simple notification to competent authorities is enough. This represents an opportunity to position themselves in this market and compete with non-banking players.
MiCA imposes robust investor protection systems, including strict fund segregation to prevent unauthorised use of client assets. These rules remain very recent and subject to interpretation. Nevertheless, these constraints can be managed without significantly affecting the service offered to clients. Transparency and risk communication obligations are met through clear user interfaces with appropriate messaging, similar to existing obligations for other financial activities.
Simultaneously, Basel Committee standards came into effect from 1 January 2025. The BIS (Bank for International Settlements) document "Prudential treatment of cryptoasset exposures" imposes strict prudential constraints: banks must limit crypto-asset exposure to 1% of their own funds (maximum 2% under certain conditions). These requirements are accompanied by obligations regarding liquidity and reporting specific to crypto-assets.
The recent implementation of these regulations means interpretation and application practices continue evolving. Financial institutions must maintain flexible compliance frameworks capable of adapting to regulatory clarifications.
AML and KYT in the Crypto Context
Anti-money laundering (AML) and Know Your Transaction (KYT) requirements present particular challenges in cryptocurrency contexts. The pseudonymous nature of blockchain, transaction irreversibility, real-time processing, and integration with traditional fiat currencies create unprecedented complexity for financial crime prevention.
The regulatory landscape adds an additional layer of complexity. Recent implementation of European funds transfer regulations requires comprehensive transactional information capture. Service providers must implement address controls, transaction monitoring, and complete information collection on originators and beneficiaries.
Practically, this involves integrating solutions like Chainalysis for address control and continuous transaction monitoring. Suspicious transaction alerts require dedicated examination by compliance officers via specialised interfaces. High-risk transactions can be automatically rejected by configurable systems.
Compliance with Travel Rules (mandatory information sharing between financial institutions) requires capturing detailed information on originators and beneficiaries. Integration with platforms
like Notabene enables seamless information transfer between institutions, supporting regulatory compliance while maintaining transactional efficiency.
Risk Management: balancing innovation and protection
Operational risk management in crypto banking encompasses client activity risks, institutional crypto portfolio exposure, and general IT risks. Effective mitigation requires sophisticated crypto-asset management approaches, optimising liquidity across exchanges and custody solutions to minimise operational risk exposure.
Limit management operates at both transaction and position levels. Transaction limits protect against client errors and fraudulent account usage via daily, weekly, or monthly restrictions. Position limits control individual client exposure and overall institutional risk for each crypto-asset.
Real-time dashboards provide back-office users with complete portfolio visibility, showing asset distribution across custody and exchanges with historical tracking of entries, exits, and evolution patterns. These systems generate alerts based on client or institutional activity thresholds, enabling proactive risk and liquidity management. Controlling these aspects becomes crucial in the context of new Basel Committee requirements: exposure must be controlled and continuously adjusted.
Building the Future of Secure Crypto Banking
Crypto banking is no longer an option but a strategic imperative today. Institutions mastering security and compliance gain a decisive advantage. These requirements are no longer barriers but differentiators that build client and regulatory trust.
At Sopra Steria, we have developed a modular approach enabling banks to deploy a complete crypto offering within six months, leveraging proven technology partners like Fireblocks and Chainalysis. Our strength lies in the ability to orchestrate this complex ecosystem while respecting multiple constraints: security, regulatory, operational monitoring. But beyond constraints, Sopra Steria possesses expertise in the traditional banking world. We understand banks' specific expectations regarding reporting, integration into existing banking information systems, and risk governance. This dual competence (crypto and traditional banking) makes all the difference in project success.
Success in crypto banking depends on recognising that security and compliance represent strategic investments in sustainable growth. Institutions embracing this reality position themselves to capture opportunities in cryptocurrency financial services while maintaining the trust underlying all successful banking relationships.