Lloyd’s of London has entered the cryptocurrency market, albeit with a minimum of fanfare from the organisation itself.
Kingdom Trust, a Kentucky-based organisation, is the recipient of its milestone policy. Originally launched in 2010, Kingdom Trust is an independent qualified custodian regulated by the South Dakota Division of Banking. It currently provides custody services for over 30 different assets, including Bitcoin, Bitcoin Cash, Bitcoin Gold, Ethereum, Ethereum Classic, Litecoin, Ripple and its recent additions of ZCash and Stellar Lumens. More are planned in the near future.
Due to its profit potential and prospective future use, many businesses are expressing an increased interest in storing their financial assets in cryptocurrency form, where regulations allow.
“Qualified custody by a regulated, insured financial institution is a top priority and critical hurdle for institutions to invest in the digital asset markets,” said Matt Jennings, CEO of Kingdom Trust. “By adding another trusted specialist like Lloyd’s to our platform, we’re ensuring that current and future clients will have access to a highly-secure, complete safekeeping solution tailored to meet the challenges of institutional finance.”
The decision to issue a policy comes on the back of previous statements from Lloyd’s on the topic. In July 2018, a Lloyd’s bulletin to its syndicates noted: “In view of their novel nature and the absence of clear regulatory frameworks and precedents for cryptocurrencies and other crypto assets, Lloyd’s considers that managing agents should proceed with a level of caution that recognizes the risks associated with this class of asset.”
Cryptocurrency presents a number of interesting challenges for insurers. There is little historical data which can be used to assess risk, making determining fair premiums difficult. The often-fluctuating value of cryptocurrencies can also present insurers with undue exposure.
Additionally, cryptocurrencies themselves have been surrounded with controversy in recent years. Their anonymous nature has attracted criticism from some quarters due to their potential use for illegal activities. Fraud has been a mainstay of the technology, with numerous high-profile hacks causing parties to lose their investments.
Kingdom Trust utilises a number of different security technologies, one of the most notable being its use of “cold storage” in which a customer’s digital assets are stored offline and accessed only when necessary, presenting a much more difficult target for prospective fraudsters.
The specific underwriter of the Kingdom Trust’s policy has not yet been publically identified.