Fund managers launching digital-asset strategies face a structural tension that rarely surfaces in conventional fund formation work: the regulatory decision you make at formation – domicile, licence category, custodian selection – determines both the investors you can accept and the legal weapons available to you when something goes wrong. A crypto fund (a collective investment vehicle whose portfolio consists wholly or substantially of digital assets) does not fail at the trading desk alone. It fails at the intersection of an inadequate licensing structure and a dispute for which the formation documents provide no remedy.
This analysis examines fund manager licensing through the disputes angle: what the wrong structure costs when an investor redeems under duress, when a counterparty defaults, or when misappropriated assets need to be frozen on-chain. The regulatory regimes at issue span the major hubs – from MiCA and ESMA in the EU to the SFC in Hong Kong, MAS in Singapore, VARA in Dubai, CAYMAN/BVI structures, and the FCA in the UK. In each, the licensing decision is simultaneously a compliance obligation and a litigation posture.
Why Fund Manager Licensing Is a Disputes Question, Not Just a Compliance One
A fund manager's licence determines the legal architecture that governs every future dispute arising from that vehicle. The licence category sets the applicable rules on segregation of assets, redemption rights, counterparty obligations and disclosure – and those rules either give the manager procedural leverage in a dispute or strip it away entirely. In our cross-border practice, we consistently see managers discover this only after a redemption gate is challenged, a sub-custodian fails, or an investor threatens injunctive relief.
Consider the baseline scenario. A manager registers an offshore vehicle in a jurisdiction chosen primarily for low minimum capital and fast formation. The structure works until an investor in a regulated market – the EU, Hong Kong, Singapore – seeks to enforce a redemption. At that point, the investor's counsel asks two questions: Is the fund subject to any recognised regime? Are assets properly segregated? If the answer to either is uncertain, the manager is defending in an information vacuum.
The cross-border reality compounds the risk. A fund domicile in the Cayman Islands or BVI does not eliminate regulatory scrutiny in the jurisdiction where investors are located. Under MiCA, EU-based investors in unregistered vehicles may trigger reverse-solicitation questions. Under the SFC regime in Hong Kong, marketing to professional investors requires its own analysis separate from the fund's home registration. The licence – or its absence – follows the investor, not just the entity.
There is a further dimension that practitioners rarely flag at formation: the type of licence the manager holds determines which courts and which remedies are realistically available to recover misappropriated digital assets. England and Wales, the DIFC Courts, Hong Kong, Singapore – each of these forums grants relief on the basis that a claimant has a recognisable legal interest in identifiable assets. A properly licensed and structured fund, with audited segregated custody, generates a paper trail that satisfies that threshold. An unregistered offshore vehicle may not.
For a scoped assessment of how your fund's current licensing structure would hold up in a cross-border dispute, contact OBOLUS at info@oboluslaw.com. The process above describes the standard formation path. Your facts – the investor base, the asset mix, the counterparty exposures – change the analysis materially. Map your options
What the Major Regimes Require of Digital-Asset Fund Managers
Each leading hub has developed a licensing regime for digital-asset fund managers, and each attaches specific obligations that bear directly on the manager's ability to litigate effectively when assets are at risk. The differences are structural, not cosmetic.
Under MiCA, the EU's Markets in Crypto-Assets Regulation supervised by ESMA and national competent authorities, a fund manager operating a vehicle that invests in crypto-assets must determine at the outset whether the fund itself constitutes an AIF (alternative investment fund) under the AIFMD or whether it falls within a MiCA-specific perimeter. The two regimes can overlap. Where they do, the manager's disclosure obligations, capital requirements and custody obligations stack. Passporting across EU member states is available once authorisation is in place – a meaningful operational advantage. But the condition is full compliance with both regimes as applicable. Managers who attempt to operate into the EU market from an unrecognised offshore structure on a reverse-solicitation basis face an increasingly narrow window, as ESMA and national authorities have tightened their interpretation of what constitutes genuine unsolicited demand.
In Hong Kong, the SFC licenses fund managers dealing in virtual assets under its licensing regime for Type 9 (asset management) regulated activities. The SFC has issued specific guidance on managing virtual-asset portfolios, including requirements for custody arrangements, valuation, and risk management. A manager operating a fund that invests more than a defined portfolio threshold in virtual assets is expected to hold the relevant SFC licence. Failure to do so exposes both the entity and its responsible officers to enforcement action – and, critically, to civil claims from investors who argue that they were advised or managed by an unlicensed person.
In Singapore, the MAS framework under the Payment Services Act addresses service providers, while fund managers come under the Securities and Futures Act licensing regime. A digital-asset fund manager advising on or managing a portfolio of tokens that constitute capital markets products requires the corresponding CMS licence. The regime is strict on representatives' competency and on the manager's risk management framework. MAS has also signalled increasing scrutiny of fund managers who rely on licensing exemptions while conducting what is, in substance, a managed account or fund service.
In Dubai, VARA's activity-based licensing model applies primarily to operating entities conducting virtual-asset activities on the mainland. An asset management or fund management activity involving digital assets requires the relevant VARA licence, with VARA's rulebooks governing conduct, disclosure, and custody. The DIFC, which operates its own FSRA-regulated environment, provides a parallel common-law structure that many institutional managers prefer for its alignment with English legal principles – a factor that matters acutely when litigation arises.
The BVI and Cayman Islands remain widely used domiciles for digital-asset fund vehicles, governed respectively by the BVI FSC under the VASP Act 2022 and CIMA under the Cayman VASP Act. These are legitimate, well-recognised structures. But their utility depends on the manager also holding any required licensing in the jurisdiction from which the fund is managed – the common mistake is to conflate domicile of the fund with the regulatory status of the manager.
How the Wrong Domicile Locks In Risk – and Costs
Choosing the wrong domicile for an investment vehicle is not an abstract compliance failure – it is a direct financial cost. The cost appears in three places: tax leakage on distributions and disposals; restricted investor access in regulated markets; and limited remedies when assets go wrong.
On tax, a fund domiciled in a jurisdiction with no applicable tax treaty network, no VAT/GST exemption for fund management services, or an unclear treatment of staking rewards and on-chain income will generate leakage at every distribution event. The fund manager who did not map the tax position at outset often discovers the liability when a redemption is processed and the withholding calculation is challenged. This is a cross-border problem by nature: the fund sits in jurisdiction A, the manager operates in jurisdiction B, the investors are in C through G, and the assets move through exchanges in D and E.
On investor access, certain categories of institutional investor – EU pension funds, US registered investment advisers, Hong Kong authorised schemes – have their own investment restrictions. They may be unable to allocate to a fund domiciled in a non-equivalent jurisdiction, or may require that the fund manager hold a licence in the manager's own jurisdiction before they commit. A Cayman fund managed from Dubai without a VARA licence, or from Singapore without a CMS licence, will be disqualified from those allocations regardless of the fund's own credibility.
The disputes dimension is the least discussed. A fund domiciled in a jurisdiction whose courts have no established recognition of digital assets as property, no track record granting worldwide freezing orders over crypto wallets, and no mechanism to compel exchange disclosure is a structurally vulnerable vehicle. When assets are misappropriated – by a rogue employee, a fraudulent counterparty, or a hacked sub-custodian – the fund's manager needs to move in hours, not weeks. The ability to obtain a worldwide freezing order (an injunction freezing a defendant's assets globally) or a Norwich Pharmacal order (compelling a third party to disclose information enabling identification of a wrongdoer) depends on having a properly constituted claimant in a jurisdiction with those tools.
England and Wales, the DIFC Courts, Hong Kong, and Singapore each have a developed body of digital-asset case law supporting these remedies. The CFAAR network – the Crypto Fraud and Asset Recovery network, launched in London in September 2021 – reflects the concentration of recovery expertise in those forums. A fund formed and managed with those forums in mind is a fund capable of using them.
Custody: The Structural Lever That Determines Dispute Outcomes
Custody is the single most consequential structural decision in digital-asset fund formation from a disputes perspective, because it is the point at which proprietary rights over assets are either preserved or extinguished. Under most recognised fund regimes – MiCA, the SFC framework, MAS – custody of digital assets is a regulated activity, and the fund manager's choice of custodian directly affects the fund's ability to assert a proprietary claim over assets if the custodian becomes insolvent or a counterparty defaults.
The key analytical question is segregation. Are the fund's digital assets held in accounts or wallets that are legally and technically distinct from the custodian's proprietary assets and from the assets of other clients? A regulated custodian operating under a recognised regime with mandatory segregation provides an evidential basis for a proprietary claim. An arrangement where the fund's assets are held in a commingled omnibus wallet, managed by an unregulated custodian domiciled in a jurisdiction with no applicable insolvency law, provides almost none.
This matters acutely in enforcement. Courts in England and Wales, Hong Kong, and Singapore have consistently moved toward recognising digital assets as property capable of being held on trust. In England and Wales, the landmark decision in AA v Persons Unknown [2019] established that crypto-assets are capable of being the subject of a proprietary injunction – a foundation on which subsequent recovery work has built extensively. The Hong Kong Court of First Instance similarly recognised crypto-assets as property in Re Gatecoin [2023], reinforcing the position that a fund manager seeking to freeze misappropriated assets can assert a proprietary claim over identifiable on-chain holdings. Both decisions are cited in the OBOLUS Verified Facts Registry and represent stable, citable authority.
The practical implication for fund structuring is direct. A fund whose formation documents include clear provisions on custody, clearly allocating legal title and beneficial interest, whose custodian holds a recognised licence, and whose wallet architecture is technically demonstrable through forensic tools, is a fund that a court can readily assist. A fund without those features requires expensive remedial work – often against a ticking clock – before any court application can be filed.
In our cross-border practice, we regularly advise fund managers on the custody review as part of formation, not as an afterthought. We have seen disputes where the absence of a custody agreement's segregation clause was the principal reason an injunction could not be obtained quickly. The legal cost of fixing that at the point of dispute is orders of magnitude greater than addressing it at formation.
Decision Matrix: Which Structure Fits Which Manager Profile
No single fund structure is optimal for all digital-asset managers. The right combination of domicile, licence and custodian depends on the manager's investor base, asset mix, operational jurisdiction and litigation risk tolerance. The following profiles represent common patterns; each involves real trade-offs.
Profile A – The Institutional Manager, EU Investor Base. A manager seeking to accept allocations from EU institutional investors and operating under a MiCA-consistent regime. The appropriate structure centres on a CASP authorisation in an EU member state with passporting rights, combined with a fund vehicle domiciled in a MiCA-recognised environment or a recognised AIF structure. The relevant timeline for CASP authorisation varies by member state – Lithuania and Malta have historically processed applications relatively quickly among EU NCAs, though timelines now reflect MiCA's full implementation. Key risk: the regulatory stack (MiCA + AIFMD where applicable) is demanding; under-resourced compliance teams create ongoing exposure.
Profile B – The Asia-Pacific Manager, Professional Investor Focus. A manager targeting Hong Kong and Singapore professional investors, with a portfolio of liquid digital assets. The appropriate structure typically involves an SFC Type 9 licence (Hong Kong), or a CMS licence (Singapore), with the fund domiciled in Cayman or BVI – structures that those investors and their counsel understand. The key risk is that the manager's compliance with SFC or MAS conduct requirements must be demonstrable at the fund level, not just the entity level. In our practice, we have seen regulatory enquiries triggered not by the fund's domicile but by the manager's conduct in managing positions and communicating with investors.
Profile C – The MENA-Based Manager, Regional and International Investors. A manager operating from Dubai with a mix of regional and international investors. The appropriate structure depends on whether the manager operates within DIFC (FSRA-regulated, common-law environment with strong litigation infrastructure) or on the mainland (VARA-licensed). A VARA activity-based licence covers the relevant digital-asset activities; the DIFC structure provides better litigation alignment for international investors. Key risk: the VARA rulebook obligations are detailed and operationally demanding – managers who treat VARA as a lighter regime than, say, MAS, routinely discover that the conduct and disclosure expectations are substantively comparable.
Profile D – The Early-Stage Manager, Offshore Structure. A manager at seed stage, seeking to preserve optionality and minimise initial regulatory cost. BVI or Cayman fund vehicle, with the manager holding any required licence in the operational jurisdiction. The practical trade-off is access: certain institutional investors will not allocate without a recognised manager licence; certain banking relationships require it. The disputes risk is managed by ensuring that the formation documents, custody arrangements and operational controls are litigation-ready from the outset, even if the full licensing stack is built out over time as AUM grows. We match this profile to a phased licensing roadmap, not to an assumption that the offshore structure is a permanent solution.
The Disputes Audit: What Counsel Checks Before a Problem Becomes a Crisis
A disputes audit of a digital-asset fund structure is a disciplined review of the fund's legal architecture against the question: if assets are misappropriated or a counterparty defaults tomorrow, what can this fund do, where, and how fast? We conduct this review regularly for fund managers who are either forming a new vehicle or reassessing an existing one after a near-miss incident in the market.
The review covers five areas. First, the proprietary claims map: does the fund hold legal or beneficial title to its digital assets in a form that a court in the target recovery forum will recognise? This requires reviewing custody agreements, wallet architecture, and the fund's constitutional documents. Second, the forum selection analysis: which jurisdictions have the tools – worldwide freezing orders, disclosure orders, proprietary injunctions over digital assets – and does the fund have a sufficient connection to those jurisdictions to invoke them without a protracted jurisdictional challenge?
Third, counterparty due diligence on exchanges and sub-custodians: what happens to the fund's assets in the event of exchange insolvency? Does the fund have direct access to withdrawal or is it a creditor in an insolvency queue? Fourth, the AML/Travel Rule position: the Travel Rule (the obligation under FATF Recommendation 15 to pass originator and beneficiary data with a virtual asset transfer) applies in most major hub jurisdictions. A fund's compliance with Travel Rule obligations, or its failure to comply, can become relevant in a dispute where the fund's own transaction history is scrutinised. Fifth, stablecoin concentration risk: where the fund holds USDT or USDC positions, the fund's counsel should understand that Tether and Circle hold contract-level freeze authority over their issued tokens – a capability that can work for or against the fund depending on the circumstances.
A manager who commissions this audit before a dispute arises is in a materially better position than one who commissions it after. The cost of the audit is a fraction of the cost of emergency cross-border litigation.
From Practice: When Custody Structure Decided the Outcome
In a recent matter, a fund manager using a Cayman-domiciled vehicle discovered that a sub-custodian had commingled its digital-asset holdings with those of other clients following an operational failure. The manager needed to establish a proprietary claim over identified on-chain balances before those assets were moved. Working with forensic partners using blockchain analytics tools, we traced the specific wallet addresses and transaction hashes attributable to the fund's holdings. We then prepared and filed an application in a leading common-law forum for a disclosure order and a proprietary injunction, supported by a detailed on-chain forensic report demonstrating the provenance and traceability of the assets. The fund's custody agreement – which had been reviewed at formation to include explicit segregation language – was the document that established the legal basis for the claim. The injunction was granted, and the assets were frozen before further dissipation occurred. The matter was resolved in a subsequent period without trial. The detail that made the difference was a custody clause that had been inserted two years earlier, at the insistence of counsel, when the economic stakes appeared modest.
A Common Assumption: Any Offshore Vehicle Works Equally for a Digital-Asset Fund
A persistent belief among first-time digital-asset fund managers is that offshore vehicles are interchangeable and that the choice between Cayman, BVI, Marshall Islands or similar jurisdictions is primarily a cost and speed decision. This assumption is incorrect in ways that become apparent only when a dispute arises.
The differences that matter from a disputes perspective are: first, whether the jurisdiction's courts have any developed jurisprudence on digital assets as property (Cayman and BVI are ahead of many alternatives here); second, whether the jurisdiction has a functional relationship with the recovery forums where assets are most likely to need freezing (England and Wales recognition of Cayman and BVI orders, for example, is well established); third, whether the jurisdiction's insolvency regime provides adequate protection for fund assets in the event of a service provider failure; and fourth, whether the jurisdiction has the AML/VASP regulatory infrastructure that institutional counterparties and banks expect.
We have worked through structures where the initial domicile choice created a bottleneck at exactly the moment urgent action was needed. The remedy – re-domiciling or introducing a parallel vehicle – is possible but time-consuming and expensive. It is far more efficient to make the right choice at formation, informed by the full picture of what a disputes-ready structure requires.
The AUDIENCE_MYTH here is worth stating plainly: "any offshore vehicle works equally for a digital-asset fund" is not true. The vehicle's utility in a dispute is a function of its legal architecture, its jurisdictional connections, and the quality of its formation documents – not its name or its nominal registration cost.
If a prior application stalled or a counterparty dispute has surfaced, a structural review can identify the root cause and the available routes forward. Write to OBOLUS at info@oboluslaw.com or message us via t.me/oboluslaw. Map your options
The Cross-Border Reality: Where the Fund Sits vs. Where Disputes Land
The most consistent structural miscalculation in digital-asset fund formation is treating the fund's domicile as its legal home for all purposes. In practice, a dispute will land in the forum that is most useful to the claimant – not the forum specified in the fund's constitutional documents. The governing law clause and the jurisdiction clause in the fund's documents are starting points, not final answers, in cross-border digital-asset litigation.
Consider the pattern we observe regularly. A fund is formed in Cayman, managed from Singapore, with investors in the UK, Germany and Hong Kong, assets held across three exchanges in different jurisdictions, and the alleged wrongdoer located in a fourth. The investor seeking to enforce a redemption, or the fund manager seeking to freeze misappropriated assets, will look for the forum with the strongest toolkit and the fastest process. That is typically England and Wales (worldwide freezing orders, Norwich Pharmacal orders, well-developed digital-asset jurisprudence anchored by AA v Persons Unknown [2019] and Osbourne v Persons Unknown [2022]), the DIFC Courts (for counterparties with UAE nexus), or Hong Kong (where the court's recognition of digital assets as property, confirmed in Re Gatecoin [2023], supports injunctive relief).
For the fund manager, the implication is that litigation readiness is not the same as contractual forum selection. A fund that can demonstrate a connection to England and Wales – a UK-registered entity, a UK-based service provider, a UK investor, assets transiting a UK-regulated exchange – can use the English courts' toolkit regardless of its Cayman domicile. Building those connections deliberately, at formation, is part of a disputes-literate fund structuring exercise.
Allied counsel in the relevant jurisdiction handle local filings and enforcement steps. What matters is that the fund's structure creates the jurisdictional hooks that make that engagement possible quickly and at proportionate cost.
Related at OBOLUS
- Funds and Investment Vehicles for Digital-Asset Businesses – structuring, domicile selection and regulatory positioning for digital-asset fund vehicles
- Fund Manager Licensing in Hong Kong – SFC licensing requirements, Type 9 authorisation and custody obligations for digital-asset managers
- How to Align Founder Relocation With Group Tax – managing the personal and entity-level tax consequences of cross-border restructuring
FAQ
Where should a crypto fund be domiciled?
The right domicile depends on the investor base, the manager's operational jurisdiction, the asset mix and the fund's litigation risk profile. Cayman Islands and BVI are widely used for their established legal infrastructure and institutional familiarity. EU-targeting funds increasingly require a MiCA-consistent structure or an authorised AIFMD vehicle. The domicile decision should be made alongside – not before – an analysis of the regulatory requirements in the manager's home jurisdiction and the jurisdictions of target investors.
Does a digital-asset fund manager need a licence?
In almost every major hub, yes. The SFC in Hong Kong requires a Type 9 licence for managing virtual-asset portfolios above a defined threshold. MAS in Singapore requires a CMS licence for capital markets products management. VARA in Dubai licenses asset management involving digital assets. Under MiCA, the CASP authorisation framework and applicable AIFMD obligations apply. Operating without the required licence exposes the manager to regulatory enforcement and materially weakens its position in any investor dispute.
How is custody arranged for a crypto fund?
Custody for a digital-asset fund should be arranged through a regulated custodian holding a recognised licence in the relevant jurisdiction, with explicit contractual segregation of the fund's assets from the custodian's proprietary holdings and other client assets. The custody agreement's segregation provisions are the foundation of any proprietary claim if assets are misappropriated or the custodian fails. Commingled or unregulated custody arrangements create significant structural risk that courts in leading recovery forums will recognise immediately when injunctive relief is sought.
OBOLUS is an independent digital-asset law boutique acting only for businesses. We advise exchanges, custodians, token issuers and funds on licensing across 70+ jurisdictions, on disputes and on-chain asset recovery across 25+ forums, and on the tax, banking and compliance structures that sit around them. Digital assets are the whole of our practice. We match domicile to investor base, asset mix and redemption profile – and we work alongside forensic partners to convert on-chain evidence into court-ready disclosure applications. To discuss your situation, contact info@oboluslaw.com.
By Roman Levitt, Technology & DeFi Counsel – specialising in the intersection of fund formation, digital-asset custody architecture and cross-border disputes for digital-asset investment vehicles.
This publication is general information about the law and does not constitute legal advice. It is not a substitute for advice tailored to your circumstances. OBOLUS accepts no liability for action taken or not taken on the basis of this material. For advice on your situation, contact info@oboluslaw.com.