Safeguarding the Future of Digital Assets: The Challenges Facing Digital Asset Custodians

The digital asset custody sector is rapidly evolving, yet remains fragmented and largely unregulated in the UK, leaving investors exposed to risks. Unlike traditional finance, where custodians operate under clear legal frameworks, crypto custodians lack defined protections - often holding client assets in omnibus accounts that could be vulnerable in insolvency cases. As tokenisation expands across financial markets, the demand for secure and compliant digital custodians will grow, necessitating stronger security measures, operational resilience and global regulatory alignment to protect investors.

Mark Rowan and Rowan Milne from Kroll, a leading financial advisory firm, discuss their work helping traditional finance clients navigate the risks and opportunities of the digital asset space. As more mainstream investors look to gain exposure to crypto and other digital assets, Kroll is providing guidance on building robust custodian infrastructure and managing the unexpected risks that come with this new frontier.

Their expertise spans both the traditional finance world and the evolving digital asset landscape, positioning them to help bridge the gap and enable safer, more informed participation in this rapidly transforming market. The speakers discuss the fragmented nature of the digital asset custodian market, where clients seek the same level of trust and security they have with traditional financial depositories.

They note the opportunity for consolidation and standardization in this space, as well as the varying levels of custody services offered, from offline "cold" wallets to more accessible "hot" wallets. The speakers emphasize the importance of balancing security and accessibility when it comes to holding digital assets, as the risk of hacks remains a significant concern. The speakers discuss the importance of secure custody for digital assets, highlighting the need for a balance between easy access and robust protection. They compare this to traditional finance, where one has a current account for daily spending and a deposit account for long-term storage.

The speakers then outline the three main options for storing digital assets: self-custody, exchange-based custody, and independent third-party custodians. They note that the US is emerging as a leading jurisdiction in this space, with regulators and policymakers aiming to foster innovation while also building trust through appropriate regulation. Overall, the conversation emphasizes the evolving landscape of digital asset custody and the opportunities for firms to engage in shaping the regulatory framework. In this podcast discussion, Mark Turner and his colleague Rowan Milne share insights into the growing interest from institutions in digital custody and upcoming plans for asset managers in this space.

00:00:00 - Navigating the Digital Asset Landscape: Kroll's Regulatory Expertise

00:01:57 - The Rise of Digital Assets and Traditional Investor Involvement

00:04:01 - Bridging the Gap: Consolidation in the Digital Asset Custody Market

00:06:35 - Custodian Services: Cold Wallets vs. Hot Wallets

00:07:46 - Risks of Hot Wallets and Crypto Hacks

00:08:27 - Balancing Hot and Cold Wallets

00:09:26 - Custodian Risks in Crypto Investments

00:10:38 - The Rise of US Regulation in Digital Assets

00:12:51 - Tracking Down Experts on Digital Custody

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