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27 April 2022       Albourne

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The Alternative Investment Management Association ("AIMA"), together with leading digital asset custodians and industry experts (including Albourne), has published a new Industry Guide on Digital Asset Custody for institutional investors. The guide provides industry guidance on sound practices and key considerations around due diligence for institutional investors determining how to custody their digital assets. This jurisdiction-neutral guide has been primarily designed for institutional investors who are seeking the services of a digital asset custodian.

It is the initiative of AIMA’s Digital Assets Working Group ("AIMA DAWG") – a cross section of around 300 senior industry experts including institutional investors, custodians, exchanges and other service providers. It is tasked with driving AIMA’s regulatory engagement, thought-leadership initiatives, and operational guidance in the area of digital assets.

The concept of digital asset custody revolves around the safekeeping of a private key. However, as the private keys are used to store, manage, and transfer digital assets by the owner and help with the decryption of messages and authentication of transactions, they represent a single point of failure in the system. Therefore, private keys require sophisticated technologies to prevent theft, loss or destruction. It is the control and management of these private keys which have given rise to the frameworks supporting the custody of digital assets as a distinct and specialist service offering.

While keeping a private key safe is fundamentally a technical need entailing specific hygiene protocols, when embedded within a commercial service offering, potential users of that service need to consider the terms upon which the service offering is provided, the regulatory framework sitting around the custody provider, any insurance provisions that are required or are in place and the legal basis upon which the assets are held.

As a general resource, the guide should not be regarded as a substitute for professional advice, which should still be obtained where appropriate. Further, institutions engaging in digital asset custody should pay close attention to applicable regulatory requirements and guidelines issued by regulatory authorities in applicable jurisdictions.

For the full paper please click here.