While all eyes were trained on FTX last November, the world’s largest interdealer broker, TP ICAP, got a licence to start a crypto exchange.

Large financial firms will soon be able to trade spot crypto via a new brand, Fusion Digital Assets. Approval from the Financial Conduct Authority is one of the surest signs yet that traditional finance is getting serious about the asset class.

The FTSE 250-listed firm hopes to carry out its first live trades in the coming months, and has already enlisted Fidelity Digital Assets as a custodian.

The launch comes as regulators crack down on crypto. In the US, that has taken the form of enforcement action against native firms like Coinbase.

In the UK, meanwhile, the government is drawing up a rulebook for digital assets that will be largely based on existing rules for traditional finance firms.

As TP ICAP looks ahead to a pivotal year for both Fusion Digital Assets and for crypto more broadly, Financial News caught up with its joint heads of digital assets, Simon Forster and Duncan Trenholme.

The transcript below has been edited for clarity and brevity.

Why did TP ICAP decide to launch a crypto exchange?

Simon Forster: Fusion Digital Assets is our entry point for spot crypto.

When we looked at the landscape in 2017, there were a number of exchanges that predominantly served retail clients. If we were to see our institutional clients trade spot crypto, they would need some basic infrastructure, which we didn't see.

Fusion's key principles are segregation of responsibilities between custody and settlement, and trading and execution. We think the market is now starting to appreciate those concepts.

There's a broader understanding that the retail exchanges that were fit for purpose for retail customers are lacking the things you need if you're an institutional investor.

Duncan Trenholme: A lot of this is about plumbing. We're working towards a wholesale marketplace where many of our customers that haven't previously been able to enter crypto can do so.

[Clients] need a custodian, they need a venue, they need their trading systems and vendors to be connected. We're piecing those things together.

It’s been a bumpy ride for crypto. Did the top brass have any doubts?

DT: It was in 2019, at the height of the bear market, that we were in front of the executive committee. They decided to go on this journey with us and take this medium-to-long-term strategy. That’s testament to their willingness to explore new technologies.

SF: We're fortunate that our management understands that these things take time to build.

What about your TP ICAP colleagues – did they think you were crazy?

SF: Not specifically around what we're doing in crypto!

[Digital assets] still polarise opinion. We continue to try and be a resource for people within the firm, whether that is around native protocols or whether it's around this shift in market infrastructure and this concept of tokenisation that is becoming increasingly relevant to different parts of our organisation. That starts to make our jobs a little easier as the level of understanding increases.

The crypto crash has come just as you launch Fusion Digital Assets. Has it hit client confidence?

DT: In previous downcycles the asset class itself was questioned. But the overriding sentiment that we have seen this time around is just that the industry needs to mature. The service providers need to professionalise.

There are investors who have cut their exposure to the asset class until the service providers are fit for purpose. They've said they need to limit exposure to the asset class because now the risks of dealing on a centralised exchange are not just theoretical, they they've actually played out in practice.

SF: No particular cohort of clients has collectively changed its view. There's only a very small percentage of our client base that is actually active in this space, and an even smaller percentage that is active in the spot market.

In general, it takes significant time for the people we deal with to go from an idea through to implementation. You're talking 18 months in some cases. As such, they have a good understanding of what they want to do and how they want to do it, so events [like FTX] don't change their long term view. It just refines how they think about implementing those plans.

But the hedge fund community, for example, seems to be mobilising. That's going to be interesting for the next 12 to 18 months.

What needs to happen to rebuild trust?

SF: Last year was a watershed moment. A lot of the traditional names have either launched or are in the process of rolling out their solutions for crypto. That gives us a high degree of confidence for the next wave of adoption.

If you're a big traditional customer looking to allocate a very small, almost insignificant portion of your capital into this ecosystem, it's difficult to use a new provider. So you look to your traditional providers and wait for them to get up to speed.

A lot of those providers are people that we have established relationships with specifically over the last five years, or people we have good relationships with as a wider organisation.

We're rolling out this solution with a view to adding additional custodians, some of which will be more familiar names. That puts our clients in a good position, because they have options that are familiar to them, as opposed to only having providers they're less familiar with.

Everyone in crypto is talking about the market maturing. Are people just jumping on the next bandwagon?

SF: There are firms that did very well previously that are now thinking about how to do well in this new era. People are now looking to firms that have had a consistent message over the last two to five years. That's what gives investors comfort that you aren't just trying to be relevant for what's happened over the last six or 12 months, but that you've had a view on where you think this market is heading for the next 10 years. That resonates louder with clients after the events of 2022.

DT: It's great to see the crypto community trying to address things like counterparty risk. If they weren't doing that you would worry. Ultimately investors will decide on which service providers they use based on what’s important to them.

How far away are we from widespread institutional adoption?

DT: We're at the formative stages of a wholesale market.

SF: A lot of the key ingredients are either in place or in flight, both on the custody side and on the regulatory side in traditional financial jurisdictions. Now it's a case of connecting them. That's going to take time.

These things are glacial when you operate in regulated financial organisations and jurisdictions. But things are a lot clearer now in terms of the names that we see building out products. From our perspective, we need regulation and so do our clients.