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Global law firm Hogan Lovells today announced its recent collaboration with Zodia Custody, an institutional-grade crypto custody solutions provider, backed by Standard Chartered and Northern Trust, to produce a digital asset custody paper, which comes at a time where numerous institutions are pursuing ground-breaking digital asset projects, many of which require the services of digital asset custodians, and who seek clarity on digital asset custody for corporations and institutions.
Despite the so-called “crypto winter” continuing throughout 2022, investment in digital assets remains on the rise – it is estimated tokenised markets could potentially be worth as much as USD $24 trillion by 2027, or 10% of global GDP.[1]
In light of this potential, the paper attempts to:
- “Demystify” digital asset custody, comparing the custody of digital assets with that of more traditional assets, highlighting key considerations and questions for institutions and corporations to consider when exploring projects in this field;
- Outline the historical context, including the EU and UK regulatory frameworks that have existed to date;
- Delve deeper into the differences in digital asset custody, the associated levels of risk and how to safely manage them, as well as the more nuanced legal considerations; and
- Establish a way forward for digital asset custody, in the hopes to enable firms to plan ahead and diversify their offerings to clients in ways they have not before.
With firms pursuing new digital asset projects, there has never been a greater need for clarity.
Custodians play a key role in such projects, yet there seems to be a lack of consensus in the market regarding how digital asset custody arrangements work in practice and how they are regulated.
The risk to clients in the event of any custodian insolvency, heightened at a time when the global economy seems poised to enter a recession, means it is essential to ask the right questions before entering into a custody arrangement to ensure client assets are appropriately held and protected. Of particular importance is ensuring digital asset custodians are clear on the way in which assets are stored, safeguarded, and how insolvency risk is managed.
Speaking on the paper, John Salmon, partner at Hogan Lovells, said:
“With new and exciting projects being explored, institutions are gaining confidence in the use of digital assets, and are beginning to dip their toes in to this world. It has never been more important for those institutions to have a clear understanding of digital asset custody, how to distinguish between the different types of arrangement on offer, and to be able to evaluate risks when selecting a custody service.
In collaboration with Zodia Custody, we wanted to bring clarity to the complexities of digital asset custody, combining our collective legal, technical and operational knowledge throughout the paper, with the aim of demystifying the process and highlighting the key questions that should be asked when entering into a custody arrangement.”
Zodia Custody worked closely with the Hogan Lovells team to cover the idiosyncratic features of digital asset custody when compared to the custody of traditional assets, the different approaches to digital asset custody and the key considerations for institutions when entering into a digital asset custody arrangement.
Julian Sawyer, CEO of Zodia Custody, said:
“The need for institutions to have a clear understanding of the factors to account for when entering the digital asset space is more crucial than ever, and this report from Hogan Lovells and Zodia Custody highlights the important role of custody.”
For further information and to view the paper, please visit:
https://engagepremium.hoganlovells.com/_uploads/blockchain-tool-2022/insights/CT-REQ-2080DigitalAssetsCustodyPaper01LP.pdf
