Custody and Safeguarding of Client Crypto-Assets Under MiCA

Custody has historically been one of the highest-risk areas in the crypto industry, with several high-profile collapses linked to the mishandling or misappropriation of client assets. MiCA responds to this directly by imposing detailed safeguarding obligations on CASPs that provide custody and administration of crypto-assets on behalf of clients.

Segregation of Client Assets

CASPs providing custody must segregate client crypto-assets and funds from their own assets, both on-chain and in their internal books and records, so that client holdings can be readily identified and are protected in the event of the CASP’s insolvency.

Custody Policy and Agreements

A CASP must maintain a custody policy setting out its internal rules and procedures, and must enter into an agreement with each client specifying the CASP’s duties and liabilities, including the arrangements that apply in the event of a hack, loss of private keys or other operational incident.

Liability for Loss

Under MiCA, a CASP providing custody is, in principle, liable to its clients for the loss of crypto-assets resulting from an incident attributable to it, unless it can demonstrate the incident arose from an event beyond its reasonable control. This significantly raises the operational and insurance considerations for custodial CASPs.

Building an Institutional-Grade Custody Function

In practice, compliant custody typically requires robust key management architecture, clear internal controls, independent reconciliation processes, and consideration of insurance or other risk-mitigation arrangements, alongside the governance and reporting structures MiCA requires.

Enalian advises crypto-asset businesses, investment firms and payment institutions on MiCA authorisation, notification and ongoing compliance in Cyprus. If you are planning a CASP application or reviewing your regulatory status, our team can guide you through the process. Get in touch with our team to discuss your specific circumstances.

This article is provided for general informational purposes only and does not constitute legal, tax or regulatory advice. Regulatory requirements are subject to change; readers should seek specific advice on their circumstances before taking action.