- The past year witnessed an upsurge of interest relating to digital assets among mainstream institutions and investors
- Secure custody of digital assets is fundamental to meeting the needs of the various market stakeholders within the digital assets ecosystem
- AIMA’s new guide provides sound practices and key considerations around due diligence for investors determining how to custody their digital assets
The Alternative Investment Management Association (AIMA), together with leading digital asset custodians and industry experts, has published a new industry guide on digital asset custody for institutional investors. The guide has been primarily designed for those who are seeking the services of a digital asset custodian or, to the extent legally permissible, a custodial infrastructure provider.
It provides sound practices and key considerations around due diligence for institutional investors determining how to custody their digital assets, and has been written by a cross section of practitioners, as the custody of digital assets is cross-functional in nature, ranging from technologists and cyber security professionals to legal and compliance teams.
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.
Jack Inglis, CEO at AIMA, said in a statement: “Hedge fund allocations to digital assets continue to gain traction and AIMA is well positioned to assist our members with operational guidance around this growing asset class through our working groups, market research and sound practice guides. This guide on digital asset custody aims to provide industry guidance and key considerations for institutional investors determining how to custody their digital assets.
“My thanks to all our members who contributed to making this excellent resource for investors.”
Richard Itri, chief innovation officer at ECI, said in a statement: “As investment funds increasingly adopt the use of digital assets, this guide serves as an invaluable tool for navigating the use of private keys for secure digital asset ownership. Technology and regulations are ever-changing but secure asset custody remains vital. Drawing from the knowledge of numerous industry experts, this guide functions to provide funds the guidance needed to facilitate the understanding of the relationship between innovation and regulation.”