During the World Economic Forum event in Davos, UBS Chairman Colm Kelleher spoke about cryptocurrencies and the blockchain. He is very bullish on blockchain, but is looking for regulation around cryptocurrencies.

“Technology is unstoppable,” Kelleher said. “Blockchain technology will reduce enormous operational friction, reduce costs and, if properly leveraged, will be a very good value additive to the chain.”

While Kelleher only joined the UBS board in 2022, the bank has one of the longest histories in blockchain technology. He started the Utility Settlement Coin, a settlement token backed by central bank reserves. That morphed into Fnality, now owned by 17 institutions and recognized as a systemically important payment system in the UK. It plans to launch this year.

However, Kelleher has reservations about cryptocurrencies. He believes that in its current form, banks “cannot justify selling that product.” And he was grateful that cryptocurrencies did not become systemically important during the last cryptocurrency boom.

“We had investors who wanted to invest in currencies,” the UBS chairman said. “And we had to draw a line on what was right for those investors. What is our fiduciary duty? And by the way, what is our compliance responsibility? And we had not answered those things.”

“And in many ways, I think we dodged a bullet because this thing blew up so fast. But it will come back one way or another. And we are looking at the regulatory framework that allows us to accommodate that for our clients.”

On a related note, when asked what he thinks are the biggest risks on the horizon, he is concerned about geopolitical issues and the non-bank financial sector (NBFI). That would include cryptography, but he wasn’t talking about cryptography at the time.

“Banks and insurance companies are well regulated,” said the UBS chairman. “I think they are systemically safe, we can argue. But I do think that the regulators, with all due respect, have gotten off track in terms of the non-bank NBFI sector. And they are looking at the risks that emanate from that through a banking lens rather than a general control lens.”

Outside of cryptocurrencies, UBS has embraced blockchain in a big way. Last November, it issued probably the largest blockchain bond of CHF 375 million ($410 million) on the SIX Digital Exchange (SDX) with a double listing on SIX but the full issuance natively on the blockchain.

It is also involved in Fnality, the Broadridge DLT repo offering, the HQLAX DLT collateral management network, and the FundsDLT blockchain distribution platform, among other initiatives.