RIAs: Top Considerations for Selecting a Qualified Digital Asset Custodian

RIAs require a partner that can provide fully integrated products, secure custody, and transparent regulatory compliance. And with increased focus by the Securities Exchange Commission (SEC) and White House on crypto, it’s likely RIAs will be required to work with an unequivocal qualified custodian in order to participate in digital assets on behalf of their clients.

Where should an RIA begin in selecting the right crypto custody partner?

Most people’s initial experience with digital assets starts with a hot wallet, whether in the form of choosing to hold cryptocurrency on an exchange, or via one of the many hot wallets available. Quite often, their second interaction with custody is to use a Ledger, Trezor, or other form of cold storage. In all of these cases, as an individual, when you use a hot or cold wallet yourself, this is self-custody. If you make a mistake or break your device, you lose your assets, and it’s 100% your responsibility for the loss.

At Anchorage Digital, we believe that when you select a custodian, they should bear responsibility alongside you, however, not every custodial model takes this approach or fully mitigates your potential to lose or compromise the very assets you’ve turned over to be protected

Considerations for RIAs

• Secure custody: Custody offerings should be privately insured, and be auditable and accountable for all client assets while not compromising security. Custody provided by a federally regulated qualified custodian provides high compliance standards.
• Trading capabilities: A crypto partner should provide RIAs with multiple liquidity sources using a diverse array of exchanges and OTC desks for most favorable pricing, and allow RIAs to manage trades manually as well as programmatically.
• Reconciliation & reporting: Under SEC Rule 204-2 of the Investment Advisers Act, an RIA must keep true, accurate, and current records pertaining to digital asset transactions on behalf of their clients. RIAs need a regulated partner who meets or exceeds the same requirements they must to operate in a compliant, safe manner.

Access

Ease of use, time to settle, and asset availability are all important access points an RIA or institution needs from their crypto partner. The Anchorage Digital custody model makes trading, safekeeping, and even on-chain participation like staking and governance accessible, transacting at speeds similar to a warm or hot wallet, while private key data stays completely offline within air gapped hardware. We also support a wide range of assets for broad portfolio exposure.

Security

Security is the foundation of everything we do, and should be a paramount consideration for RIAs and institutions. Our approach to information security and resiliency meets U.S. federal requirements and standards to mitigate cybersecurity risk by keeping data secure.

Customer service and flexible ways to trade

Beyond convenience and security in the custody product itself, an RIA needs a partner that is responsive to its needs and also supports the assets its clients demand. Anchorage Digital offers trading flexibility so RIAs can tailor their approach to trading via a dashboard, API, or by working with experts for sophisticated transactions and offers access to liquidity at multiple trading venues.

Regulatory status and segregated assets

Anchorage Digital Bank unequivocally meets the definition of a qualified custodian, helping RIAs meet their fiduciary responsibilities. With our national bank charter, we’ve made an ongoing commitment to regulatory oversight, accountability, and meeting the high standards assigned to all other federally regulated banks. RIAs and our clients benefit from our ongoing commitment to meet our regulators’ requirements and our strong controls around risk, capital preservation, compliance, and anti money laundering (BSA/KYC/AML). Additionally, though we have never experienced an issue, clients take comfort in knowing that we have a crime insurance policy that covers the loss of digital assets through theft, robbery, burglary, as well as third party computer and funds transfer fraud on all accounts.

Anchorage Digital has received multiple external audits from our clients and SOC-I and II auditing. The extensive pen testing and continuous internal risk management processes we conduct also protect your institution as the blockchain space continues to evolve. We can also easily prove to external auditors and clients that we have control of keys of digital assets at any time through on-demand challenge response authentication.

Lastly, client assets are not commingled with company assets, and assets are never at risk of being considered part of the debtor estate in the event of bankruptcy proceedings.

Taking a next step forward

We believe Anchorage Digital’s technologically sound and regulated solution for safekeeping and using digital assets sets the industry standard. If your institution would like to discuss custody, see a demo, or learn about the various services from trading to staking we offer within our secure custody platform, please get in touch.