Insights

When it comes to the growing excitement around investing in digital assets, institutional clients are primed to innovate. This highly sophisticated professional cohort demands superior safety and security, together with an exceptional standard of transparency, oversight and control. 

A robust institutional digital asset trading and custody solution will take the friction out of complex trading, settlement, custody and reporting.

In a recent survey by Fidelity, 74% of institutional investors indicated that they plan to buy or invest in digital assets in the future. Given this demand, the importance of a best-in-class approach, integrating deep, specialized expertise and proven, leading-edge technology, cannot be understated.

If you are a qualified portfolio manager, an introducing broker or a mutual fund dealer looking for prudent access to the digital assets space, these are the things you need to consider:

1. Regulation

Any hesitation to invest in digital assets might be intensified by the risks associated with unregulated counterparties. Working with an IIROC-regulated custody provider, for example, ensures many layers of protection. For instance, mandatory insurance means assets are protected from potential loss.

2. Established industry experience and expertise

Working with a firm that has established itself over decades is the right place to start. Firms that have weathered market turns, volatile economic conditions and an evolving industry have developed good and strong business processes. Look for a firm that boasts financial security, a demonstrated track record, stable internal controls and overall longevity of business.

3. Offline, cold-vaulted storage

Digital assets should be held in cold storage with 24-7 onsite security, hardened physical facilities and multi-person and multi-organization access controls. A responsible custodian will ensure the maximum amount of coin is held in cold storage.

4. Multi-site storage

Accessing assets in “deep cold storage” should require private keys to be authorized in varied geographic locations by separate teams of associates. A multi-site design allows for full redundancy should any site become completely unavailable due to unforeseen events.

5. Multi-tiered approval structure

A dynamic entitlement structure and multi-step authentication for transactions should be used to mitigate fraud and protect your assets.

6. Optimized custody

Your assets should be managed in an omnibus fashion, while segregated at the books and record level to provide on-chain privacy and maximum liquidity and security.

In addition to these considerations, investors should also be mindful of the business model and priorities of the counterparties they choose to work with.

Additional questions should be asked if your counterparty

• rehypothecates clients’ assets
• uses third-party custodians for digital assets
• allows for a single point of failure
• avoids responsibility for the full lifecycle of the wallet

When performing due diligence for the right partner for your institutional digital asset trading and custody needs, be sure the provider can demonstrate the best-in-class operational, physical and cyber security controls outlined above.

Fidelity Clearing Canada ULC (FCC), operating as Fidelity Institutional Digital Asset Solutions, or FiDAS^™, is the first IIROC-regulated dealer to bring to the Canadian market a regulated digital currency trading and custody solution for institutional investors.

FCC is an indirect, wholly-owned subsidiary of 483A Bay Street Holdings LP, which is a joint venture between FIL Limited and Fidelity Canada Investors LLC. FCC and its registered affiliates, Fidelity Investments Canada ULC and Fidelity (Canada) Asset Management ULC, conduct business under the “Fidelity Investments” brand, which is a trademark of Fidelity Investments Canada ULC and a registered business name of FCC. Each of FCC, Fidelity Investments Canada ULC and Fidelity (Canada) Asset Management ULC are separate legal entities and conduct business independently of each other.

FCC is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).