Digital assets are now a fixture in institutional portfolios. Over 60% of asset managers already allocate at least 1% to crypto, and nearly half of institutional clients plan to invest in tokenized funds within the next two years. What started as an experiment is becoming standard: family offices, hedge funds, sovereign wealth funds, and pension groups are actively exploring tokenized instruments and digital-native yield strategies.

Banks can no longer treat this as fringe activity. Your institutional clients already hold crypto—and they’re looking for regulated custodians to help them do it securely and compliantly. In fact, among smaller institutions, 71% plan to increase crypto exposure over the next cycle. That capital is looking for custody partners who can meet fiduciary standards, reporting requirements, and risk controls.

Custody isn’t just a support function—it’s the foundation that will determine which banks capture digital asset flows and which get left behind.

Custody: A Major Institutional Barrier

Establishing secure custody remains one of the biggest hurdles for institutional adoption. According to EY, institutions remain cautiously optimistic about digital assets—but cite regulatory uncertainty and lack of trusted custody partners as top barriers.

This is changing in 2025. New frameworks like the U.S. Securities and Exchange Commission (SEC)’s Safeguarding Rule, Europe’s Markets in Crypto-Assets Regulation (MiCA), and Singapore’s updated Payment Services Act are providing much-needed regulatory clarity. The message is consistent across jurisdictions: only licensed, qualified custodians meet the standard for institutional participation.

The first regulated crypto Exchange-Traded Funds (ETFs) approved in 2024 highlighted this shift—every product had to secure full-service, compliant custody to move forward. Institutions now expect their crypto custodians to deliver what they get from traditional finance: regulatory alignment, robust security, and operational efficiency.

Without a compliant custody solution, institutional capital simply stays on the sidelines. With one, digital assets become investable.

Why Regulatory-Approved Custody Matters

For regulated institutions, custody isn’t optional—it’s a legal baseline. Qualified custodians provide the infrastructure needed to meet fiduciary, compliance, and audit obligations.

This includes:

• Segregated accounts to protect client assets from provider risk

• Insurance coverage against theft, loss, or key mismanagement

• KYC/AML compliance, audit trails, and reporting to meet fund and regulatory scrutiny

• Institutional-grade controls like Hardware Security Modules (HSMs), multi-sig, and System and Organization Controls (SOC) audits
  
  

In practice, regulated custody is what makes tokenized or crypto assets investable. It turns wallets into trust infrastructure—backed by compliance, oversight, and security standards comparable to traditional finance.

Global Custody Regulations for Institutions

Regulators worldwide are now mandating licensed custodians for digital assets. In the U.S., the SEC has indicated that crypto held for clients must be placed with qualified custodians  

Europe’s new MiCA regulation (effective Dec 2024) explicitly treats crypto custody as a regulated activity. Under MiCA, crypto custodians must be authorized and follow strict safeguards; for example, client crypto-assets must be legally segregated from the custodian’s own assets on the blockchain and firms must maintain transparent custody policies 

Singapore’s MAS likewise now requires licensed custodians: amendments to the Payment Services Act mandate that crypto service providers keep customer tokens in trust accounts and segregate customers’ assets and placing them in a trust account for the benefit of customers. Similar guidance is emerging in other markets like Hong Kong and the UAE.

In short, global rule-makers are converging on one message: institutional digital asset services must use qualified, regulated custodians. The technology may be new, but the compliance blueprint is familiar – leverage custody providers as in traditional finance.

Licensed Custody vs. Self-Custody: Risks and Liabilities

For institutions, the difference is simple: licensed custody mitigates risk—self-custody magnifies it.

Self-custody means internal teams bear the full burden of securing keys, maintaining audits, and managing compliance—a costly, risky proposition. It also introduces legal exposure: in major jurisdictions like the U.S., regulated entities must use qualified custodians. Exchanges and blind wallets don’t meet that standard.

By contrast, licensed custodians are purpose-built: they provide regulated infrastructure, insurance, proof of reserves, and contractual protections. After high-profile failures like FTX, the industry consensus is clear—institutional assets require institutional-grade custody.

Features of an Ideal Institutional Custody Solution

Given these demands, a best-in-class custody platform for institutions combines cutting-edge security with compliance and operational features. Key characteristics include:

• Multi-layer Security:  Use of offline (cold) key storage with multi-party computation (MPC) or multi-signature key management, HSMs and multi-factor authentication. These measures prevent any single point of failure and protect against hacking or insider theft.

• Real-Time Monitoring & AML Controls:  Continuous, automated monitoring of all transactions (on-chain supervision) coupled with KYT/KYC analytics. This ensures suspicious activities are flagged immediately and allows the custodian to comply with anti-money-laundering rules.

• Insurance & Asset Protection:  Comprehensive insurance policies covering digital assets in custody (often up to hundreds of millions) are essential. The custodian should also segregate client assets in trust so that, even in a worst-case scenario, customer funds are insulated.

• Regulatory Compliance:  The custodian must hold all required licenses and undergo regular independent audits. Look for SOC 1/SOC 2 attestation and ISO 27001/17/18 certifications to verify controls. These industry-standard audits prove that the provider follows best practices in security and accounting.

• Operational Integration:  Seamless API connectivity and trade settlement support allow institutions to reconcile positions and report trades easily. Audit-ready reporting (daily reconciliations, detailed transaction logs) is also critical for satisfying fund auditors and regulators.
  
  

Secure Institutional Crypto Strategies with ChainUp

For institutions building crypto strategies, choosing a proven custody partner is critical. ChainUp’s licensed custody infrastructure exemplifies this approach.

ChainUp Custody is SOC 2 Type 1 & 2 certified and ISO 27001/17/18 accredited, having won an international award as a leading institutional custody platform. Its multi-layer security architecture employs MPC-based key management, hardware isolation and multi-factor controls.  

ChainUp also provides 24/7 blockchain activity monitoring with built-in KYT/KYC compliance services. In short, ChainUp delivers segregation and auditability that regulated funds require. Institutional clients can rely on ChainUp to hold their digital assets securely under the full protection of global regulatory standards.

Contact ChainUp to learn how its licensed custody solutions can support your institutional digital asset strategy.