Insurance and risk management for crypto custody

Crypto custody presents considerable challenges for companies. The key task is to build an infrastructure that is reliable and above all secure. Overarching risk management and insurance are two driving factors that ensure a custody solution can stand up to technical risks such as hacks or internal fraud. Boerse Stuttgart Digital’s custody solution combines a MiCAR-licensed security architecture with a comprehensive insurance package to minimise risks for institutional players.

Complexity of risk management for crypto assets

The risk profile of digital assets and cryptocurrencies differs from that of traditional securities – so it’s important that users of custody solutions understand it properly.

Financial institutions are used to the highest compliance and security standards. Custody solutions for your own assets and those of your customers must therefore specifically address all risks and how to minimise them.

The complexity of risk management for crypto assets can be divided into four central risk areas:

• Technical risks: The threat of external cyberattacks is constant. The primary task of custody solutions is therefore to provide a state-of-the-art platform that reduces these technical risks.

• Internal and operative risks: Risk does not just mean external threats. It can also be internal. Theft by employees or operative errors in private key management are significant risks that can also be financial ones.

• Regulatory risks: The regulatory landscape, led by MiCAR and the ToFR (Transfer of Funds Regulation, often called the Travel Rule), provides a framework that is clear yet also complex. Adhering to strict KYC (know your customer, identity checking) and AML (anti-money-laundering) guidelines in the crypto environment is a considerable burden on compliance resources.

• Counterparty risk: What happens to assets if the custodian itself encounters economic difficulties? Bankruptcy remoteness is a non-negotiable criterion for institutional customers when choosing a custody solution. All customer assets must be separated from the custodian’s own assets.

It is hard for banks, brokers, asset managers and other institutional players to cover all areas with an internal solution. This is where special custody solutions come into play. They offer more than just a platform, providing crypto custody that takes all risks into account and is insured – for example the solution by Boerse Stuttgart Digital.

Insured crypto custody from Boerse Stuttgart Digital

To address the defined risks comprehensively, Boerse Stuttgart Digital relies on a multi-layer security concept including ISO 27001 and SOC 2 Type 1 certifications, a sovereign technology infrastructure and one of the most extensive insurance packages on the market.

Segregated wallet structure with a focus on cold wallets

The aim of risk management is to keep stored cryptocurrencies and digital assets secure – which also involves minimising the technical attack surface. That’s why Boerse Stuttgart Digital uses various wallet types to achieve an optimum balance between operative liquidity and maximum protection:

*VAULT is Boerse Stuttgart Digital’s proprietary solution, which strategically reduces dependency on third parties and guarantees full sovereignty over the entire security stack.

Custody insurance Consortium of leading insurance companies

Even the best technology cannot fully exclude the possibility of a black swan event. If the worst happens, our custody insurance kicks in. Boerse Stuttgart Digital has comprehensive crime insurance, underwritten by a consortium led by Munich Re and Zurich.

This basic insurance, which is included in the standard set-up, covers a total of 130 million euros. It applies in the event of loss due to:

• Fraudulent and malicious external attacks (hacks, cyber fraud)

• Theft or fraud by employees

• Physical loss and burglary

A key benefit of this protection is that the insurance covers all wallet types – from hot, to cold, to ice cold. What’s more, you as an institution have the option to take out additional insurance policies for up to 750 million euros.

Proven bankruptcy remoteness

A fundamental aspect of counterparty risk is also addressed: In the event of insolvency, stored assets can always be separated from Boerse Stuttgart Digital’s own assets. This insolvency protection has been checked and verified by a recognized EU insolvency expert in a comprehensive assessment.

Custody based on well thought-out risk management

When institutional players enter the digital asset market, it does not have to mean compromising on security or accepting unpredictable risks. A modern custody solution offers more than just technical custody. It provides integrated risk management covering technical, operative and regulatory risk, as well as financial protection through comprehensive insurance.

Boerse Stuttgart Digital Custody was the first German crypto service provider to receive an EU-wide MiCAR license for crypto custody business from BaFin. One reason for that is the secure infrastructure including multi-layer insurance protection. So you can concentrate on your core business and on growing your crypto offering – protected by one of the strongest partners in the European market.

In our extensive white paper on our custody solution, you’ll receive detailed risk management information, as well as learning which use cases, from B2B only to B2C, cover your product, offering you and your customers a secure start in the world of digital assets and cryptocurrencies.

We’ll be glad to advise you in a 1:1 chat and find out about your specific requirements. We look forward to hearing from you!