The three methods financial institutions can reduce the risk associated with digital asset custodian platforms.
Auditing, tracking, and reporting
Several traditional corporations employing digital asset custody usually find that improved transaction tracking is critical, especially after opting for a whole new basket of the asset class. Financial institutions with custody wallets are choosing this path because clients want to track, audit, and reconcile the final balances of their assets. Analysts at traditional financial enterprises can gather publicly-validated ledger data to derive meaningful insights from data in the long term. The risk associated with digital asset custodian can emerge in several areas related to internal and external audits. The functionality offered by the digital asset custodian platforms to the financial corporations are in cohesion with the regulatory requirement. The GAAP methodologies are applied to all types of assets in custody. This help make the digital asset custody process more transparent and accessible to general investors.
Risk-free custodial infrastructure
Prior to opting for a digital asset custodian, it is critical for the respective organization to examine and evaluate the vendor’s susceptibility to particular industry risks. When opting for a digital asset custodian, it is ideal for the organization to establish an ongoing communication channel to track risks as they arise. Digital asset custody platforms are among the cutting-edge technologies developed by third-party technology companies that financial institutions are leveraging today to deliver better, low-risk services.
Digital asset custodian allows corporations to attain assurance and control over technologies to ensure that it is working properly. Such tactics allow financial institutions to gain assurance in the long term as well as mitigate potential custodial risk. Higher-level management of financial institutions should opt for custody wallets that offer complementary user entity control. It allows user to implement their own controls to mitigate risks.
The internal risk assessment process helps spot risks stemming from digital asset custodian partners’ communications gaps. The leader of the financial institution should also review the underlying digital asset custody and asset onboarding process. It is also important for the leaders of the corporation to commit to ongoing communication management and tracking of security breaches of the digital asset custodian platform. Before opting for the custody wallets, it is crucial to confirm which digital asset custodian platform is responsible for compliance with anti-money laundering and know-your-customer protocols.
Top-notch security and confidentiality.
The digital asset custodian platform with security protocols in place helps reduce the risk posed to custody wallets’ private keys and their backups. Most institutions opting for the digital asset custody platform must ensure that the backups are not being compromised and confidentiality is lost in the process. Encryption and private keys restrict any unauthorized participant from getting access to digital assets in custody. If the integrity of the custody wallets’ private keys and their asset backups gets compromised, it may result in a serious loss of value – making it impossible for the asset holder to recover their assets in custody.