Digital Asset Custody for Cayman Funds: What Boards and CIMA Expect

Digital asset custody for Cayman funds is governed by fund law, CIMA's rules on the safekeeping of fund assets and, where a Cayman entity holds virtual assets for others, the Virtual Asset (Service Providers) Act (As Revised). A fund's board must be able to show who controls the private keys, how the fund's assets are segregated and who independently verifies that the fund holds title.

Key takeaways

• A registered private fund must appoint a custodian for its custodial fund assets unless it has notified CIMA that doing so is neither practical nor proportionate (Private Funds Act, section 17).
• Where no custodian is appointed, title verification must be carried out by an administrator, another independent third party or, with safeguards, the manager.
• CIMA's segregation of assets rule for regulated mutual funds requires a service provider for safekeeping, segregation of the portfolio and independent title verification.
• Safekeeping or administering virtual assets, or the instruments that control them, as a business in or from the Cayman Islands requires a virtual asset service licence.
• The board keeps responsibility for overseeing custody arrangements, including key management, wallet controls and assets held at exchanges.

Why custody works differently for digital assets

For a conventional fund, custody means securities held in a custodian's books in the fund's name. For a digital asset fund, control is exercised through private keys or similar instruments, and whoever controls them can move the assets. On-chain transfers are generally final, so a compromised key or an unauthorised transfer is difficult to reverse.

Many funds also hold assets in more than one place: with a third-party custodian, in exchange accounts used for trading, and in wallets used for staking or other on-chain activity. Each location carries a different control and counterparty profile, and the governance task is to know where every asset sits and on what terms. These points are central to Cayman digital asset fund formation, and they are easier to settle before launch than after.

Private funds: the statutory framework

Section 17 of the Private Funds Act (2025 Revision) requires a private fund to appoint a custodian, subject to one exception. The custodian must hold the fund's custodial fund assets in segregated accounts opened in the name, or for the account, of the fund. For other fund assets, it must verify, based on information provided by the fund and available external information, that the fund holds title, and keep a record of those assets.

Who counts as a custodian

The Act defines a custodian as a person established in the Islands or in a non-high risk jurisdiction who is authorised or otherwise permitted there to provide custody services, and who does not have a control relationship with the fund's manager or operator. "Custodial fund assets" are assets capable of physical delivery or of registration in an account opened in a custodian's books in the name, or for the account, of the fund. Whether a particular token falls within that definition is a question the fund should answer, and record, for each asset type it holds.

The notification route

Under section 17(3), a private fund is not required to appoint a custodian if it has notified CIMA and it is neither practical nor proportionate to do so, having regard to the nature of the fund and the assets it holds. The fund must then appoint a person to carry out title verification: an administrator or another independent third party, or the manager or a person with a control relationship with it, provided the verification function is independent from portfolio management or the conflicts are identified, managed, monitored and disclosed to investors. Where verification is not performed by a custodian, administrator or independent third party, section 17(5) allows CIMA to require it to be checked by an appropriately qualified independent third party.

Section 18 imposes a parallel cash monitoring requirement, under which the appointed person monitors the fund's cash flows and confirms that subscription monies have been received. The wider private fund obligations are covered in our guide to the Cayman private funds regime.

Regulated mutual funds: CIMA's segregation rule

For funds licensed or registered under section 4 of the Mutual Funds Act (As Revised), CIMA's Rule on Segregation of Assets for Regulated Mutual Funds applies. Its main requirements are:

• the fund must appoint a service provider for the safekeeping of its portfolio;
• the portfolio must be segregated and accounted for separately from the assets of any service provider, and the fund must ensure that providers holding or managing it comply;
• a licensed fund must ensure by contract that any provider holding or managing the portfolio is regulated by CIMA, a recognised overseas regulatory authority or another regulator approved by CIMA;
• no service provider may use the portfolio to finance its own or any other operations, and any transfer and reuse arrangement must be disclosed to investors before they invest; and
• the operators must ensure that title verification is carried out by an administrator or other independent third party, or by the manager with independence or properly managed and disclosed conflicts.

For digital asset funds, the reuse and segregation points bear directly on exchange accounts, lending and staking arrangements. A board should understand whether an exchange holds the fund's assets in segregated wallets or on an omnibus basis, and whether its terms permit any form of reuse. Our guide to setting up a Cayman crypto fund places these questions within the wider launch process.

When a custodian needs a VASP licence

The Virtual Asset (Service Providers) Act defines a virtual asset custody service as the business of safekeeping or administration of virtual assets or the instruments that enable the holder to exercise control over virtual assets. Section 4(1)(b) requires a person providing virtual asset custody services in or from within the Islands to hold a virtual asset service licence. CIMA's supervisory circular of 1 April 2025 confirmed that from that date providers of custody and trading platform services must obtain a licence.

Section 10 of the Act allows CIMA to impose net worth, reporting, disclosure and safekeeping requirements on a licensed custodian. A licensed custodian may not encumber client deposits unless the beneficial owners specifically agree, and must enter into a custodial arrangement setting out, among other things, how the assets are held, the transactions it may undertake, the risks and mitigants, how the client accesses the assets and terminates the arrangement, its security safeguards and the remedies available for loss.

A custodian established outside the Islands is assessed against the Private Funds Act definition and its home authorisation rather than a Cayman licence. Separately, whether any Cayman entity in the structure, such as an affiliated custody or treasury vehicle, is itself providing virtual asset services is a classification question to settle before launch. Our article on VASP registration and licensing requirements explains the categories.

What boards are expected to review

CIMA's Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds places ultimate responsibility for oversight on the fund's operators. They approve the appointment and removal of service providers and the terms of their contracts, retain responsibility for delegated functions, review material contracts so that responsibilities are clearly divided, and regularly assess the suitability and capability of each provider.

Applied to custody, boards commonly ask for the following as a matter of practice:

• the custody model for each asset: third-party custodian, manager-controlled wallets using multi-signature or multi-party computation, or exchange accounts;
• how keys are generated, stored and backed up, and who can authorise a transfer, with signing thresholds and withdrawal address whitelisting;
• whether wallets and accounts are opened in the fund's name or held on an omnibus basis;
• the scope and limits of any insurance, and independent control reports on the custodian;
• how the administrator reconciles on-chain and exchange balances for each valuation point;
• the terms of any staking, lending or collateral arrangement and how they are disclosed; and
• incident response, and how assets are recovered or transferred if a provider fails or the arrangement ends.

The board's review, its questions and the answers received should be minuted. Custody and valuation are closely linked, so the same discussion should cover the pricing sources used for each asset, as described in our article on hedge fund valuation policies.

Disclosure to investors

The Statement of Guidance expects operators to communicate adequate information to investors, including material changes. The offering document should describe where assets are held, who controls them, any reuse or encumbrance permitted, and the principal custody risks. A change of custodian or custody model is likely to be a material change for investors and, for a regulated fund, may also require notification to CIMA.

Frequently asked questions

Must a Cayman crypto fund appoint a custodian?

A registered private fund must appoint a custodian unless it has notified CIMA that doing so is neither practical nor proportionate, in which case it must arrange independent title verification. A regulated mutual fund must appoint a service provider for safekeeping under CIMA's segregation rule.

Can the investment manager hold the private keys?

Manager-controlled wallets do not meet the Private Funds Act definition of a custodian, which excludes a person with a control relationship with the manager. A private fund using that model relies on the notification route in section 17(3), with title verification arranged under section 17(4) and the related conflicts managed and disclosed.

Does a Cayman digital asset custodian need a licence?

Yes. Providing virtual asset custody services in or from within the Islands requires a virtual asset service licence under the VASP Act.

Are assets held at an exchange in custody?

Not necessarily. It depends on the exchange's terms, its regulatory status and how the assets are recorded. The board should know which assets sit at exchanges, in what amounts, and on what terms.

Where Bell Rock fits

Bell Rock Group Financial Services Limited is licensed by CIMA as a Company Manager under the Companies Management Act (As Revised), Licence No. 633916. For digital asset funds, Bell Rock coordinates formation, CIMA registration filings and board documentation, including the records of the board's custody review; it is not a custodian and does not hold keys or act as a signatory. Directors appointed through Bell Rock act in their personal capacity.

Related reading

• Crypto fund governance priorities for independent boards
• Maximal extractable value and fund governance
• Asset tokenisation: structuring and governance
• Tokenised Fund Structures in the Cayman Islands
• Cayman VASP Application: Scope, Registration or Licence and Steps
• Crypto-Asset Reporting Framework (CARF) in the Cayman Islands

Bell Rock supports digital asset fund launches through its Cayman digital asset funds service.