Custody of digital assets held inside an investment fund is one of the most consequential structural decisions a fund manager makes before launch – and one of the most frequently deferred. The manager who concentrates on domicile and investor onboarding, then treats custody as an operational afterthought, typically discovers the problem at the worst moment: when a prime broker declines, when an institutional investor's due-diligence questionnaire arrives, or when a regulator asks who actually holds the private keys. Custody arrangements for funds – the legal, operational and cross-border mechanisms by which a fund's digital-asset holdings are held, segregated and controlled on behalf of investors – sit at the intersection of fund law, securities regulation and on-chain mechanics, and no single jurisdiction has yet resolved all three cleanly.
The right custody structure turns on four variables: where the fund is domiciled, where its investors are located, what assets it holds, and which regulated custodians are prepared to accept both the asset class and the fund vehicle. Get the sequencing wrong and the fund may be structurally unable to accept institutional capital, may face unexpected tax events on asset transfers, or may operate in technical breach of the applicable regulatory regime. In our practice, we map those four variables before any domicile decision is made – because the custody solution often constrains the domicile choice, not the other way around.
This page sets out the regulated basis for fund custody in the leading digital-asset jurisdictions, the process a fund manager should follow, the cross-border complications that arise when the fund, the manager and the custodian sit in different regimes, and the decision framework we apply when advising on structure.
Why Custody Is a Regulated Activity, Not an Operational Choice
In every flagship digital-asset jurisdiction, custody – the holding or safeguarding of digital assets on behalf of third parties – is a separately regulated activity. Under MiCA (the EU Markets in Crypto-Assets Regulation), custody constitutes one of the defined crypto-asset services requiring CASP authorisation. Under the VARA regime in Dubai, custody of virtual assets is a standalone licence category. The ADGM's FSRA in Abu Dhabi, the MAS in Singapore under the Payment Services Act, the SFC in Hong Kong under its VASP licensing regime, and the FCA in the United Kingdom under its Money Laundering Regulations registration framework – each treats custody as a regulated function that cannot be performed by an unregistered entity.
That matters for fund managers because the fund itself, even if properly structured and licensed as a collective investment scheme or an exempt fund vehicle, generally cannot self-custody its assets without triggering the custody-service perimeter. The manager that instructs a wallet they control on behalf of fund investors is, in most regimes, performing a custody service. The analysis becomes more complex when the manager uses a multi-signature arrangement shared with an administrator or a sub-adviser, or when assets are held in a decentralised protocol rather than in a traditional custody account. Regulators in the leading hubs increasingly expect fund operators to have mapped this analysis explicitly – not assumed their way past it.
The custody obligation is separate from the fund management licence. A manager authorised to manage a crypto fund is not thereby authorised to custody the fund's assets. These are distinct perimeter questions answered by distinct rules, and conflating them is among the more common structural errors we see at the review stage of a fund launch.
For a scoped assessment of your fund's custody perimeter exposure – before the fund vehicle is finalised – contact OBOLUS at info@oboluslaw.com. The custody analysis often changes the domicile recommendation, and reversing that decision after launch is costly.
What Does the Regulated Basis Look Like by Fund Domicile?
The custody obligations a fund faces depend primarily on where it is domiciled and where its assets are held, but investor location adds a further layer of compliance that cannot be ignored.
In the Cayman Islands, a common domicile for institutional crypto funds, the Virtual Asset (Service Providers) Act establishes a registration and licensing track for virtual-asset service providers, including custodians. A Cayman fund that appoints a registered Cayman VASP as custodian satisfies the local custody expectation. However, that does not resolve the question for investors subject to EU, UK or US regulation, each of whom may impose additional requirements on how their assets are held. A Cayman domicile paired with a non-EU custodian may create difficulties for EU institutional investors whose own regulatory obligations require them to invest only through structures with appropriately regulated custodians in their home framework.
In the BVI, the VASP Act 2022 establishes a registration framework for custodians. The BVI remains a cost-efficient vehicle jurisdiction, but fund managers targeting institutional investors with EU or UK mandates should model whether a BVI fund paired with a BVI-registered custodian will satisfy their investors' counterparty requirements. In our practice, we have seen institutional investors decline otherwise well-structured BVI vehicles precisely because the custodian was not recognised under the investor's applicable regime.
Under MiCA, an EU-domiciled fund – or a fund marketing to EU investors – faces the clearest framework. The custodian must hold CASP authorisation for the custody service, or the fund must appoint a regulated third-party custodian that does. Passporting means a CASP authorised in one EU member state can custody for funds domiciled across the EU/EEA – a significant operational advantage that reduces fragmentation across the bloc. Fund managers choosing an EU domicile (Malta, Lithuania and others are active in this space) should verify that their preferred custodian holds current CASP authorisation for custody specifically, since not all authorised CASPs cover every service category.
In Singapore, the MAS Payment Services Act licence framework applies to digital-payment-token services, and custody arrangements for a Singapore-domiciled fund must be mapped against the relevant licence category. The MAS has been explicit that safeguarding of client assets is a regulated function, and the Singapore fund ecosystem has developed a set of MAS-licensed custodians capable of supporting institutional fund structures. Funds marketing into Asia often pair a Singapore or Cayman vehicle with a Singapore-licensed custodian precisely because of the MAS framework's institutional credibility.
The ADGM and VARA regimes in the UAE attract managers building Middle East vehicles. VARA covers mainland Dubai custody activity. FSRA within ADGM governs custody for ADGM-registered entities. The two regimes are separate, and a fund that straddles both zones – for example, a DIFC-domiciled manager instructing a VARA-licensed custodian – should obtain a written analysis of how the regulatory perimeter applies to each entity in the chain.
How Do Cross-Border Complications Arise in Practice?
For most digital-asset funds, the fund, the manager, the custodian and the investors do not sit in the same jurisdiction. That is the operational default, not an exception. It is also where the legal risk concentrates.
Consider a fund domiciled in the Cayman Islands, managed by a UK-regulated manager, holding assets in custody with a Singapore-licensed custodian, and marketing to investors in the EU, the Gulf and family offices in Hong Kong. Each link in that chain triggers a separate regulatory question. The UK manager faces FCA obligations around custody of client assets, even if the custodian is not UK-based. The EU investors' home-state regulators may require the custodian to be recognisable under MiCA or its predecessor frameworks. The Hong Kong investors' advisers will ask whether the Singapore custodian is appropriately licensed to provide cross-border services into Hong Kong. And the Cayman fund documents must accurately describe the custody arrangement in a way that is consistent with what each regulator would recognise.
Three specific complications arise consistently in cross-border fund custody work.
First, regulatory recognition gaps. A custodian licensed in one jurisdiction may not be recognised as a regulated custodian by the laws applicable to the fund's investors. This creates a due-diligence failure point that surfaces in LP side letters, subscription documents and regulatory examinations.
Second, jurisdictional conflict over asset location. Digital assets are not physically located, but regulatory regimes often apply as if they were. Whether the "location" of a digital asset is determined by the address holding it, the domicile of the custodian, the law governing the custody agreement, or the law of the originating jurisdiction of the token issuer varies by regime. Several court systems – including England and Wales and the DIFC Courts – have been developing principles on this question through case law, but no universal rule has settled.
Third, bankruptcy and insolvency treatment. In a custodian insolvency, whether fund assets are segregated property protected from the custodian's general creditors, or whether they form part of the insolvent estate, turns on the law of the custodian's domicile. Funds with institutional investors should ensure the custody agreement is governed by a law that provides clear statutory segregation – and that the fund documents disclose this analysis accurately.
Operators we advise routinely underestimate the interaction between the custody agreement's governing law and the fund's insolvency exposure. A custody arrangement that looks operationally efficient may carry material structural risk if the governing law does not provide the segregation protections institutional investors expect.
What Is the Process for Structuring Fund Custody Arrangements?
Structuring custody for a digital-asset fund follows a defined sequence. Compressing that sequence – moving to appointment before the regulatory analysis is complete – is the most common mistake we see.
The first step is asset classification. Before a custodian can be appointed, the fund must determine what it will hold: pure payment tokens, security tokens, stablecoins (including EMTs and ARTs under MiCA), NFTs, tokenised real-world assets, or a combination. Each category triggers different custody obligations under different regimes, and a custodian capable of holding one category may not hold the regulatory authorisation to hold another.
The second step is custodian mapping. Given the asset classes and the fund domicile, the manager identifies custodians that hold the relevant regulatory authorisation in each applicable jurisdiction – not merely the jurisdiction of the fund, but the jurisdictions of the investors and of the manager. This mapping exercise often reveals that no single custodian satisfies every requirement, and a multi-custodian structure or a sub-custody arrangement is necessary.
The third step is custody agreement review. The custody agreement governs the legal relationship between the fund and the custodian. Key provisions include: the segregation mechanics (whether assets are held in omnibus or individual accounts), the governing law and dispute-resolution forum, the liability standard applicable to loss of assets, the process for transferring assets out of custody (including who can issue instructions and under what controls), and the treatment of forks, airdrops and staking rewards generated by the custodied assets.
The fourth step is fund document alignment. The fund's offering memorandum, limited partnership agreement or articles (depending on the vehicle) must accurately describe the custody arrangement in terms that are consistent with what each regulator and each class of investor expects to see. Misalignment between the custody agreement and the fund documents is a due-diligence red flag that delays closes and, in some cases, causes institutional investors to withdraw.
The fifth step is ongoing compliance monitoring. Custody arrangements are not static. Custodians lose or amend licences; new assets are added to the fund; regulatory frameworks change. A fund that mapped its custody correctly at launch may find itself out of compliance twelve months later if it added a new asset class without re-running the regulatory analysis.
In a recent custody structuring matter, a newly established digital-asset fund had appointed a custodian on the basis of a pre-launch review completed for a prior vehicle. The asset mix of the new fund differed materially – it included stablecoin positions with an ART classification under MiCA and tokenised equity positions that triggered securities-custody rules in the investors' home jurisdictions. We identified the gap before the first investor close, restructured the custody arrangement across two custodians, and aligned the fund documents to accurately reflect the segregation mechanics. The fund closed on schedule with no LP renegotiation required.
Does Self-Custody or Multi-Signature Work for Funds?
Self-custody by the fund or manager – holding assets in wallets controlled directly by the management entity – carries significant regulatory and operational risk in a fund context, and in most leading jurisdictions it is simply impermissible for a fund structure that is raising capital from third-party investors.
The regulatory bar is clear: if the manager controls the private keys for assets held on behalf of investors, the manager is performing a custody service and requires the corresponding authorisation. Without it, the fund operates outside the regulatory perimeter from the date of first subscription. This is not a technical point that regulators overlook – it is a primary area of examination for fund supervisors across MiCA, VARA, the MAS and the FCA.
Multi-signature arrangements – where two or more parties must approve a transaction – are sometimes proposed as a middle path. Operationally, multi-sig can add meaningful security against key compromise. Legally, however, the regulatory analysis still applies: the question is not the technical mechanism but who is performing the custody function on behalf of investors. A multi-sig arrangement in which the fund manager holds one key and an unregulated third party holds another does not resolve the custody-perimeter question; it may simply distribute the unregulated custody function across two entities instead of one.
Some regulated custodians offer multi-sig or MPC (multi-party computation) technology within their regulated perimeter, meaning the technical approach can be preserved within a compliant structure. That is a viable path. But the compliance analysis must precede the technical implementation, not follow it.
If your fund's current custody structure uses a multi-sig arrangement that has not been mapped against the applicable regulatory perimeter, contact OBOLUS at info@oboluslaw.com. Identifying the exposure before a regulatory examination or an investor due-diligence process is substantially more manageable than addressing it under time pressure.
Which Custody Structure Fits Which Fund Profile?
There is no universal custody solution for digital-asset funds. The right structure depends on the fund's investor base, asset mix, domicile and operational model. The following decision framework reflects the analysis we apply in practice.
A Cayman-domiciled fund with a primarily institutional investor base in the EU and North America should appoint a custodian that holds recognised authorisation in at least one MiCA jurisdiction and, where US investors are present, is able to satisfy qualified-custodian expectations under applicable US frameworks. A single custodian may not cover both requirements. A sub-custody arrangement – with a Cayman-registered primary custodian and a MiCA-authorised sub-custodian for EU investor allocations – is a workable solution when properly documented.
A Singapore or Hong Kong-domiciled fund targeting Asian institutional investors should prioritise MAS-licensed or SFC-recognised custodians as the primary appointment, with the custody agreement governed by Singapore or Hong Kong law to obtain the strongest available segregation protections in those systems. The fund documents should address how the custodian's authorisation satisfies the applicable requirements for each investor category.
A EU-domiciled fund under MiCA should appoint a CASP-authorised custodian for the relevant asset classes. Passporting means a single EU-authorised custodian can serve the fund across the bloc, but the fund manager should confirm – not assume – that the custodian's CASP authorisation covers the specific service categories and asset types in the fund's portfolio. ART and EMT positions carry additional reserve and custody requirements that differ from non-stablecoin crypto-asset positions.
A VARA-licensed fund manager in Dubai operating a fund vehicle in an offshore jurisdiction should ensure the custody arrangement covers both the VARA-applicable obligations at the manager level and the applicable requirements of the fund's domicile. Where the fund domicile is the Cayman Islands or BVI, the custody analysis runs in both regimes simultaneously.
A fund holding a mixed portfolio of security tokens and payment tokens faces a layered custody obligation: securities-law custody rules apply to the security-token positions in each investor's home jurisdiction, while digital-asset custody rules apply to the payment-token positions under the applicable VASP regime. In our practice, we have not yet seen a single custodian that satisfies both requirements across more than two or three jurisdictions simultaneously. Multi-custodian structures are the practical answer for mixed-portfolio funds at institutional scale.
What Are the Most Common Mistakes in Fund Custody Structuring?
A common assumption is that any regulated custodian will satisfy the custody requirements applicable to a fund. That assumption is incorrect, and it is the source of most of the custody-related delays and renegotiations we see in the late stages of a fund launch or a fund restructuring.
The first mistake is appointing a custodian whose authorisation does not cover all of the asset types the fund intends to hold. A custodian authorised for payment-token custody is not necessarily authorised for security-token custody. A custodian authorised in one EU member state may not hold the relevant additional authorisations for stablecoin positions classified as ARTs under MiCA.
The second mistake is using the custody agreement from a prior fund vehicle without adapting it to the new asset mix, new domicile, or new investor jurisdictions. Fund counsel re-using templates without re-running the regulatory analysis is a recurring pattern that creates exposure.
The third mistake is failing to address forks, staking and airdrop treatment in the custody agreement. When a protocol forks or when staking rewards accrue to custodied assets, the question of who owns those assets and how they are held is determined by the custody agreement – not by on-chain mechanics. If the agreement is silent, the answer is uncertain, and uncertainty in an institutional fund context is always costly.
The fourth mistake is failing to align the custody description in the fund's offering documents with the actual mechanics of the custody arrangement. An offering memorandum that describes segregated custody while the actual arrangement is omnibus custody is a material misrepresentation, regardless of whether it was made deliberately.
We match domicile to investor base, asset mix and redemption profile – and we run that analysis before the custody agreement is drafted, not after. A fund that launches on a solid custody foundation closes faster, retains institutional investors, and avoids the remediation cost that follows a structural error discovered late.
Related at OBOLUS
- Funds and Investment Vehicles for Digital-Asset Businesses – our core practice for fund structuring, domicile and regulatory advice
- Alternative Investment Funds for Digital Assets in Panama – Panama's AIF regime as a fund-domicile option for digital-asset managers
- Custody Arrangements for Established Fund Operators – custody structuring and remediation for funds already in operation
FAQ
Where should a crypto fund be domiciled?
The right domicile turns on the investor base, the asset mix, the regulatory perimeter applicable to the manager, and – critically – which regulated custodians are available in or recognised by each applicable jurisdiction. The Cayman Islands, BVI, Singapore, EU member states and the UAE each offer viable options, but no single domicile is optimal for all fund profiles. Domicile selection should follow, not precede, the custody analysis.
Does a digital-asset fund manager need a licence?
In most flagship jurisdictions, yes. Managing a digital-asset fund on behalf of third-party investors constitutes a regulated activity under MiCA, the VARA regime, the MAS Payment Services Act framework, the SFC's VASP licensing regime and the FCA's rules, among others. The precise licence required depends on the fund's structure, the assets managed and the jurisdictions of the investors. Operating without the applicable authorisation exposes the manager and the fund to enforcement action and potential civil liability to investors.
How is custody arranged for a crypto fund?
Custody for a digital-asset fund is arranged through the appointment of a regulated third-party custodian that holds the relevant authorisation in the fund's domicile jurisdiction and, where required, in the jurisdictions of the investors and the manager. The custody arrangement is documented in a custody agreement that covers segregation, governing law, liability standards, instruction controls and the treatment of forks and staking rewards. The fund's offering documents must accurately reflect the custody arrangement as structured.
About OBOLUS
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 that sit around them. Digital assets are the entirety of our practice, and we act only for businesses – not for retail claimants or individual investors. For fund managers building or restructuring cross-border custody arrangements, we provide scoped, fixed-engagement analysis from initial domicile mapping through to custody-agreement review and fund-document alignment. To discuss your situation, contact info@oboluslaw.com or message us at t.me/oboluslaw.
By Lydia Brennan, Tax & Structuring Analyst – specialising in cross-border fund structuring, digital-asset tax characterisation and the interaction between custody arrangements and fund tax efficiency across multiple jurisdictions.
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.