How to move banking into the next dimension
After a distinguished career in traditional finance, Guido Bühler, CEO of SEBA, is now looking to bridge the gap between the old world of banking and the new world of crypto and digital assets.
Guido Bühler has worn many different hats during his career in finance. From the giddy heights of investment banking in the 1980s to chairing the European Central Bank’s operational management group during the aftermath of 9/11 and weathering the financial crisis of 2008 as the Chief Operational Risk Officer of an international bank, Bühler has experienced many facets of the financial industry. But with his latest venture as CEO of SEBA Crypto AG, which hopes to become one of the world’s first FINMA-supervised digital asset banks, he is leaving behind the relative safety of traditional finance to enter the seemingly volatile world of digital assets. What prompted him to head to Crypto Valley? We sat down with Bühler to find out more.
How did SEBA come about?
In one of my last roles before SEBA, I worked on a project to help private clients with institutional needs better manage their total wealth capabilities. The idea was to consolidate their wealth structure and create an asset allocation across their various financial assets – both bankable and non-bankable – so as to better align everything with their investment objectives.
During this exercise it became clear that for a large number of clients their bankable assets accounted for just 20 per cent of their total wealth. The rest was tied up in direct corporate holdings, real estate, and what I like to call private assets.
After the crash of 2008, these clients were looking for a way to apply the same analytics and risk-based approach that they had for their bankable assets to their total wealth. They wanted to be able to run stress-test scenarios from a total wealth perspective on the basis of macroeconomic changes so that they could be prepared for future events. This was the impetus for me to establish both a family office and a dedicated research and analytics consultancy, together with my partner Philipp Baretta, who is now CFO at SEBA.
Many of the clients we served had an industrial background and an affinity for technology and process engineering. The majority of them had been exposed to blockchain for quite some time. As a result they wanted crypto portfolios, which pushed us into the digital asset market. It was while better acquainting myself with fair valuations for bitcoin that I started to realise that the digital asset space was missing a fully regulated bank, and the idea for SEBA was born.
Why did you decide to apply for a FINMA banking and securities dealer licence?
We have applied for a FINMA banking and securities dealer licence because there is a misconception that distributed technology does not need an intermediary. While this is true for many elements, it is not the case for secure storage and payment.
I also strongly believe that there cannot be two standards for traditional money and digital money. By using new technology to bring the proven elements of banking together with these new, digital elements, we can move banking into the next dimension. It is in this way that blockchain and distributed technology will help to implement many of the ideas of the fourth industrial revolution.
Why hasn’t anyone done it before?
Because it is the most difficult way. Most fintech companies use a bottom-up approach, but we have decided to embrace a top-down approach with all the things that come with it: more capital, stricter rules and governance, and the combination of technology – both new and proven.
What makes the digital asset space so interesting?
Blockchain gives us a whole new toolset and a different way to look at the processes of money. The new generation, the blockchain evangelists, don’t think outside the box – because they have no box. The space is constantly changing and there is always something new to learn. That makes it incredibly interesting.
How will blockchain change the financial industry in the coming years?
I don’t think we will see a revolution, but rather a very fast evolution. If you think about it, banking is already just data, it has not been physical for many decades, but the degree of digitalisation has not fully happened. Blockchain is the catalyst, the trigger, that will accelerate the full digitalisation of the financial industry.
To take an example, the SIX digital exchange (SDX) recently announced the tokenisation of an equity. At first glance, it doesn’t seem to make any sense to apply tokenisation to equity markets. But distributed technology has two main benefits: one is the digitalisation of assets and money, which is here to stay, and the second is that it is the most efficient way of transferring ownership. Therefore, if you tokenise equity shares, you make the post-trade process almost obsolete. If you then consider the private key of a digital asset, you realise that it is the perfect collateral for a bank. This makes lending even more secure and even more efficient, and it creates liquidity in the market.
So, while we don’t know exactly how banking will work in ten years’ time, we do know that what is bankable today will be very different tomorrow. I also think that these changes will make finance more emotional, as we will be able to bring the investor and the investment closer together.
Many people are wary of blockchain and have concerns about the safety of digital assets. Is that justified?
Distributed technology is inherently very secure. However, if you don’t have your private key under control you can encounter problems – but that would be the case for physical assets too. If, for example, you lose your PIN, people can access your bank account, or if you lose the key to your safe, people can access what’s inside. There is a paradox with digital assets: to make the key very secure, you have to make it very secure in a physical sense. We therefore have different concepts of storage, from hot to cold to deep cold, to cater to different needs. The quicker you want to be able to access your assets, the more vulnerable they are. Similarly, if you want your assets to be as secure as possible, they will not be readily accessible. But that said, even hot (quick-access) storage is super-secure, as the key is maintained at all times with the bank in a very secure environment.
Another concern people have is the origin of digital assets as a result of a perceived connection to the dark web. At SEBA, how do you ensure coins and tokens are clean?
There are two things. Firstly, there is no such thing as a crypto banking licence, there is only a banking licence. We therefore need to have consistent standards no matter what the technology, and that means that we have to prove that SEBA can comply with the highest standards of regulation and control for this new digital asset class.
The second point is that blockchain is extremely transparent, which makes it less than ideal for criminal use. So the question is, how do you trace the path of a particular asset since its genesis? At SEBA, we are implementing a crypto forensic transaction monitoring tool, which means we can clarify the provenance of each asset.
SEBA partnership with Julius Baer
SEBA and its executive team led by Guido Bühler are working to provide easy and secure access to the digital asset space for institutional investors and offer core banking services to the fintech sector through a new, technologically advanced toolbox that promises to combine the best of old and new. In February 2019, Julius Baer and SEBA announced a partnership to bring wealth management and distributed ledger technology together. Bühler shares his thoughts on the collaboration:
Why Julius Baer?
We are very excited about the partnership, as Julius Baer is a distinguished bank which is known for being intelligent and sophisticated in its approach. At SEBA we want to build a brand that is seen as agile, smart, and performance driven. Therefore, the partnership is a win-win situation, not only from a brand perspective but also from a client and capability perspective.
What will the benefits be for clients?
For Julius Baer’s clients, the partnership will provide an easy and secure access point to crypto. Many clients have already explored the crypto market The partnership between Julius Baer and SEBA and the related offering we are working on will be a very complete proposition which will enable clients to participate in the digital asset space in a much more structured and comprehensive way. Another benefit will come in the form of tokenisation. For example, both Julius Baer and many of the wealthy families it serves have an interest in art. The art market, while large, is rather inefficient and not the most transparent. Through tokenisation, we can create transparency, safety, and liquidity.