Not many people will openly talk about resolution planning — after all, who wants to discuss the demise of their business? Yet it is essential to do so, especially for a trusted custodian like us. So, even if no one else wants to talk about it, we will.

In each jurisdiction we work in, we hold ourselves to the highest standards of regulatory compliance. This is why we don’t shy away from resolution planning: we have already put in place truly robust plans to ensure minimal disruption for our clients, no matter the circumstance.

As the EU’s Markets in Crypto-Asset (MiCA) regulation shines a new light on this overlooked topic, in this article we will delve into this rarely discussed aspect to reveal our comprehensive strategies for ensuring continuity and security.

A new level-playing field 

MiCA is a transformative moment for the European digital asset market. It creates a level playing field for pan-EU digital asset activities, and paves a way for the institutional adoption of digital assets in the region.

Through MiCA, which was initially conceptualised from its older sibling Markets in Financial Instruments Directive (MiFID), we have a black-and-white picture of how providers should interact with EU clients, This includes everything from creating a clear definition of what constitutes a crypto asset, all the way through to providing clear legal differentiations between custodians and wallet providers. 

MiCA also details the requirements each provider needs to meet, across the entire client lifecycle. Under the new regime, crypto-asset providers “must devise a plan for an orderly resolution of their activities.” 

But what exactly is a resolution plan? Essentially, it is a process for ceasing regulated activities in the event of a firm undertaking a strategic exit, or if it were to become insolvent. It must take into account all aspects of the business — from governance and leadership to people, IT and operations. It also requires adequate capital, liquidity, knowledge and staff, as well as planning for various scenarios. 

For many in the EU digital asset ecosystem, the need to focus on resolution planning will cause panic. The nature of digital assets adds more complexity to the equation and the introduction of MiCA means many providers are having to work backwards, with plans being scrambled into effect before the December 2024 deadline. 

What may have seemed like “going over and beyond’ a few years ago has now positioned Zodia Custody as a leader in this space. Underpinned by our bank-backed heritage, and decades of experience in this area in the traditional finance sector, Zodia Custody has in fact implemented intricate resolution planning from its inception.

A necessary plan

Through our bank-owned heritage, we have tailored processes from traditional banking and adapted them to digital assets; from private key safety, reporting, reconciliations and all the way to data recovery. Our dedication to the highest regulatory standards means we have planned for even the most unlikely eventuality and regularly conduct robust testing of these plans, rather than leaving them to gain dust in a corner. 

And here’s the example that no custodian ever likes to consider, but any custodian worth their salt should plan for: In the very unlikely scenario that Zodia Custody was to become insolvent a strategic exit is required — meaning a resolution of operations and returning all assets to the right owners. 

This is where our intensive work comes into play. Through our resolution scenario planning, we will ensure that any client’s assets in that geography are protected and then returned as we exit. 

How? Through our unique approach to custody, assets are always readily identifiable on an individual client basis and never commingled with that of the firm. This makes it easy for ourselves or independent administrators to return our client’s assets. Additionally, given the trust arrangements which underpin our service offering, our client’s assets are insolvency remote, protecting them from claims from our general creditors. This is further ensured through implementing a layered system that can cover multiple angles at all times — meaning neither day-to-day operations, private key security, or resolution planning will ever be reliant on any one person or system. 

This is what truly robust resolution planning looks like: security, compliance and reassurance — guaranteed. 

Tackling head on

Even with MiCA shining a new light on the subject, resolution planning is not the most comfortable subject to talk about as a custodian. But as December draws near, we need to tackle it head on, so you can be sure your assets are safe with us no matter what. This is exactly what we have done, through expert and robust planning.

Want to learn more about our approach to regulations and asset security? Reach out today by contacting us here. 

The past 18 months have underscored an unarguable truth: that the seamless integration of digital assets into mainstream financial services can only happen with robust custody.   

This in turn is accompanied by another truth: financial institutions must not be constrained with exclusive dependence on just one digital asset custodian, and instead should break free to adopt a multi-custody approach. This article explores why a strategic transition to multi-custody is integral in unlocking new possibilities and advantages across the digital asset landscape.  

The advantages of going multi-custodial 

The institutional digital asset industry is maturing. As part of that, the ecosystem is responding to create more intuitive products and services to better suit the complex needs of institutions.  

But to truly become an ecosystem akin to what financial institutions are used to seeing, these solutions need to be able to work together. Custody is a prime example of this.  

A multi-custodial approach is necessary for the development of that market through an institutional lens. As institutions increase their exposure in digital assets into the billions, it will be a requirement to not simply have all of your eggs in one basket. This is especially true when the assets in question are effectively bearer instruments. We’ve already seen how the risks of the old model play out: if a huge, integrated financial company is taken out of action, then the entire stack goes with it — everything could be lost.  

A multi-custodial approach mitigates the risk of this happening, which is why it is so commonplace in traditional finance. It also greatly prevents operational redundancy, as the potential for downtime is reduced when you have a network of custodians.   

But beyond risk, it also creates greater opportunities to harness different approaches and models to custody, so you can be sure that the right model is available for the specific requirements you need it for. Not to mention the myriad of other benefits, including various pricing models, a wide range of digital assets available, and even geographical reach. 

While the need to go multi-custodial is not a necessary requirement for all players — smaller funds and startups might not have the resources to take this approach in the first instance, and it may be a problem for tomorrow. So, the option has to be there for the future. If we want digital assets to become truly a part of mainstream, institutional offerings, then the ecosystem is responsible for building that.   

Preparing for a post-regulatory future 

Talking about incoming regulations is perhaps the biggest pastime for everyone in the digital asset sector, and a significant point of interest for asset and fund managers around the world. We all know it is coming, even if we don’t know precisely what shape it will take.  

If we go with the most prevailing sentiment, then we can expect a mirror of the regulations the financial services industry already has to accommodate. To that point, the more rigorous providers in the space — including ourselves — are already adhering to financial services best practice. This is a crucial point, especially when considering the sophisticated needs of larger institutions’ activity in digital assets.  

This is where a multi-custodian approach will pay off. Adopting this system now means both sides of the trading equation, both institutions and exchanges, will be able to pre-empt a post-regulation environment from day one.   

A multi-custodian approach should not just be viewed as a preventative regulatory measure. It can also be used as a selling point.  

For institutional clients, a networked approach to custody can create greater cachet — you are not just working with one of the best providers in the market, but with multiple providers boasting both excellent reputations and diverse capabilities. This, in turn, makes investors more comfortable while also expediting the due diligence process. 

But this will only work for early adopters of such a model. The future will see this as not just commonplace, but also a requirement for any large or sophisticated venture in digital assets. The time for adoption is now.  

Building the ecosystem 

It is an understatement to say that it’s not often you get to build an entire financial ecosystem from scratch. One of the most exciting things about the digital asset sector is that there are so many opportunities for innovation — to create something new in an area that is still relatively nascent.  

But as the market matures, the innovators in this landscape will need to be able to integrate in order to meet the demands of institutions and investors. Our clients aren’t just used to working in a certain way out of mere preference — they have to work in that way because of regulatory requirements.  

Thus, it is the responsibility of the digital asset ecosystem to create a truly networked approach. We must — together — build the future institutional infrastructure for digital assets.  

As a bank-owned and bank-backed organisation, this is something we take to heart. We know, intimately, the pressures and requirements. This can be seen in our key services, such as Interchange Connect — our “network of networks” that connects custodial services. It is also something we kept at the forefront when developing Zodia Custody Gateway, our latest offering which provides a curated marketplace to quickly select and onboard services from Staking to Yield to Prime.  

The future of digital assets is networked and integrated. Custodians such as ourselves must be at the forefront of this work. We must collaborate as one to create an infrastructure that allows institutions and investors to maximise the opportunities digital assets bring, without compromise.  

Want to learn more about how we are building the future infrastructure for digital assets? Contact us here.  

Faced with imminent regulatory changes to the Australian digital asset landscape, now is the time for institutions to make some moves and set themselves up for success. 

Safeguarding digital assets with a specialist, registered custodian like Zodia Custody, and making best use of our world-class connectivity will be what helps get them there.  

This article explores how Zodia Custody offers unique value to Australian institutions, including exchanges, asset managers, family offices and wealth managers. We’ll also dive into the importance of collaboration and connectivity with SAF3 and Interchange Connect, and how we’re challenging traditional notions of competition for the better.  

A new face for a new regulatory landscape 

While Zodia Custody might be a relatively new name in Australia, we bring with us not just the hunger of a freshly founded fintech, but also the deep understanding of what financial services clients really need, five years in the making. We bring a wealth of expertise that is recognised by National Australia Bank, and backed by global institutions like Standard Chartered, Northern Trust and SBI Holdings.  

We’ve just launched our digital asset custody platform, SAF3, unique to the Australian market. Perfect timing, in readiness for upcoming regulatory changes proposed by the Department of the Treasury which will likely require digital asset platforms to obtain an Australian Financial Services Licence (AFSL). Zodia Custody Australia welcomes the Government’s proposed framework, and we’re readying ourselves for our clients to have peace of mind they will meet upcoming regulatory obligations. 

How do we deliver on this promise? Our dedicated team on the ground in Australia are actively working to adhere to the very best standards and tightest of controls, boosting our already impressive credentials achieved with the FCA in the UK, the CSSF in Luxembourg, and with the Central Bank of Ireland. That’s before we even start counting the work we are doing in Japan, Singapore and Hong Kong. All this means that our commitment to safekeep digital assets on behalf of our clients is simply unmatched – both in Australia and around the world. 

Specialist, qualified custodian  

By offering cold wallet storage with 24/7 instant availability, we eliminate key risks associated with other forms of custody still prevalent in Australia. Self-custody, for example, leaves responsibility for safeguarding clients’ and businesses’ digital assets with the crypto exchange, wealth manager or family office themselves, creating significant exposure. Soon, many of these players will have to obtain an AFSL for holding or managing digital assets, adding another layer of regulatory complexity.   

In contrast, Zodia Custody Australia’s specialist approach can mitigate against the above, as well as the risk of the loss of private keys, human error causing transactional mistakes, operational complexity, and physical risk brought by self-custody. 

Harmony over disruption  

But for institutions that aren’t ready to completely change their digital asset management strategy just yet, now is the perfect time to hop on board and try us out alongside your existing setup, before time runs out to make important decisions. 

Zodia Custody Australia’s SAF3 platform with our Interchange Connect service means institutions can get the best of both worlds and leverage the expertise of multiple custodial and digital asset software providers in Australia – including the likes of Fireblocks – and get the most out of the wider ecosystem without added operational complexity. 

Interchange Connect allows institutions to use a network-of-networks to transfer digital assets across their accounts and wallets, and benefit from off-exchange settlement on their trades, while mitigating potential counterparty risk exposure on other providers’ networks. Crucially, this also ensures an additional layer of security, risk management, and solvency protection when trading digital assets.  

By being interoperable by design, institutions in Australia can use both Fireblocks and Zodia Custody Australia together to achieve a holistic digital asset management strategy. This way, there’s no need to pick one or the other.  

A new dawn for Australian digital assets 

Digital assets have a bright future in Australia. Having the right approach to custody will be what determines how soon the financial system will reap the benefits of this emerging asset class and innovative technology.  

By employing our network-of-networks strategy, we’re not just the most qualified custodian, but also the most connected. Reach out today and learn more about how we’re building the future of digital assets in Australia and beyond.