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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsBefore using a crypto prime broker, an institution should verify the legal entities and services in its transaction chain; establish who holds each asset, controls its keys and owes it a return; assess insolvency, counterparty, credit and operational risks; and test the contract, controls, reporting and exit process. A provider’s brand or a single licence does not answer those questions. The right diligence depends on the institution’s jurisdictions, assets and intended activities, so legal and risk review should be specific to the proposed arrangement.
What is the institution actually hiring?
“Crypto prime broker” can describe a bundle of services rather than one legal entity or one custody arrangement. Depending on the provider and product, execution or order routing, settlement, custody, financing, collateral management and cash handling may be performed by different affiliates or subcontractors. Identify the entity responsible for each function and follow the actual assets, cash and obligations through the whole chain.
Provider documentation can help identify questions to verify, but it is not independent evidence of legal effect. For example, Coinbase’s Prime Custody documentation describes a model involving separate named entities for some services and operationally commingled wallets alongside asserted legal segregation. Confirm the applicable arrangement in the institution’s own contracts and with independent legal advice.
Build an entity-and-flow map
For each proposed product, map the contracting entity, custodian, wallet operator, order-routing or execution entity, settlement party, lender, cash bank, venues and material subcontractors. Show where each entity is incorporated and operates, which jurisdiction governs its contract, and where assets, keys and records are located or controlled. Include affiliates: a permission, financial statement or control report held by one company does not automatically cover another.
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- Effortlessly build your crypto portfolio via the all in one Ledger Wallet app: buy, sell, send, receive, swap, stake and more across popular blockchains. 15,000+ coins & tokens in a single dashboard. Keep a close eye on the market. Compare service providers. Track performance. Get timely alerts. Build your portfolio with confidence.
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Trace a representative transaction from order placement through execution, settlement, custody and any cash movement. Mark when the institution has an exposure to the broker, venue, custodian, bank or lender, and whether an asset is held for the institution, transferred as collateral, lent, or otherwise used.
Define the proposed scope
Write down the assets, products, venues, settlement methods, financing arrangements, and any staking or other activities the institution will use. Ask the provider to identify which entities perform those activities and which dependencies or service providers are involved. Diligence the actual scope rather than a broad product name: legal treatment and operational risks can differ across assets, services and jurisdictions.
Is each entity authorised for the service it will provide?
Verify current permissions in the relevant official registers for each legal entity, jurisdiction, service and asset type. Ask counsel to assess activities whose regulatory classification depends on the facts. Do not infer that a provider is “regulated” for every service because one affiliate is authorised, or that authorisation itself establishes how a particular client’s assets will be treated if the entity fails.
Protections also depend on the asset and service. SEC Division of Trading and Markets staff FAQs explain that non-security crypto-assets may not be protected by SIPA or another specific insolvency regime; the FAQs are staff guidance and do not determine a particular provider’s status. See the SEC crypto-asset activities FAQs. Do not assume crypto-assets are securities or that balances receive deposit insurance.
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For a provider offering custody covered by the EU’s MiCA framework, compare the proposed service and agreement with MiCA Article 75, which addresses matters including the agreement, position records, custody policy, client statements, return procedures, segregation, liability and authorised subcontractors. Confirm that the rule applies to the entity, service and circumstances in question rather than assuming every crypto custody arrangement falls within it.
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For US bank counterparties or providers, review the applicable banking rules and supervisory context. The Federal Reserve, FDIC and OCC’s July 14, 2025 statement addresses existing risk-management principles for bank crypto-asset safekeeping and says, “The statement does not create any new supervisory expectations.” Read it in that narrow context: the agencies’ joint statement.
Who owns, controls and must return the assets?
Custody is both a legal and an operational question. For each asset and cash balance, establish who controls the private keys, which entity owes the institution performance or return, and whether the institution has a property interest, a contractual claim, or both. Identify the governing law and the records or local assets that would be needed to enforce a claim.
Read the contracts as a connected set
Review the master prime brokerage agreement, custody terms, account-control arrangements, financing and collateral documents, venue terms and relevant schedules together. Confirm that they consistently describe title, control, duties and remedies. Specifically test provisions covering:
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- Liens, set-off, rehypothecation, collateral use and permitted transfers.
- Shortfalls, defaults, close-out, suspension and the order in which claims are handled.
- Return procedures, deadlines, withdrawal restrictions, transfer fees and the right to move assets or positions to another provider.
Do not treat “segregated” as a complete answer. Ask what it means in the account structure and ledger, whether assets are identifiable and reconciled, and how the arrangement is intended to work in insolvency.
Assess insolvency across borders
Ask counsel to assess how client assets and claims may be treated if each relevant entity becomes insolvent, including cross-border recognition, access to local records and assets, and the effect of any omnibus structure or competing claims. FINMA’s January 12, 2026 announcement on custody guidance highlights technical custody risks and cross-border insolvency complexity for authorised financial institutions using service providers. FINMA states, “Responsibility shall remain with the authorised financial institutions in the event that such providers are used.” See FINMA’s announcement. Its guidance is Swiss regulatory context, not a universal rule for institutions in other jurisdictions.
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For covered EU custody services, use MiCA Article 75 as a specific regulatory reference point for agreements, records, segregation and return obligations, while confirming applicability with counsel. For a broader institutional overview of private-key custody and related legal and operational issues, see AIMA’s Digital Asset Custody guide; it is industry guidance, not a substitute for jurisdiction-specific advice.
Are custody controls and continuity arrangements credible?
Ask for control descriptions and evidence, not just statements that assets are held in “cold storage” or protected by “institutional-grade” security. The review should cover the full path from key creation to a client withdrawal and the ability to continue or recover service after disruption.
- Keys and access: key-generation procedures and governance; key shares and storage locations; access logs; backup, recovery, rotation and destruction; separation of duties; privileged access; and authentication.
- Transactions and withdrawals: transaction policies, multi-person approval, address allowlisting, withdrawal thresholds, monitoring and escalation.
- Wallet operations: hot, warm and cold wallet allocation, the rationale for liquidity buffers, and how controls apply to each wallet type.
- Technology and incidents: software and infrastructure security, vulnerability management, change controls, incident detection and response, and client notification.
- Records and reconciliation: how internal ledgers are reconciled to blockchain records, client statements and third-party records, and how differences are investigated and resolved.
- Resilience: business continuity and disaster recovery arrangements, recovery objectives, testing frequency, service dependencies and subcontractors.
- Asset-specific operations: procedures for forks, airdrops, protocol upgrades, chain congestion, wrong-network transfers and erroneous instructions.
Private-key control is central to custody, and key loss, theft or destruction are among the risks described in AIMA’s custody guide. Ask what evidence supports the provider’s recovery and approval procedures, and whether the institution can independently monitor balances and request a test or demonstration of relevant controls.
Interpret assurance reports within their limits
Review SOC 1, SOC 2 or equivalent reports for the services and entities actually in scope. Check the period covered, exceptions, complementary user controls, subcontractor carve-outs and remediation. A report or certification is evidence about specified controls and a defined scope; it is not a guarantee that assets cannot be lost or that the institution will be repaid.
Where does credit and counterparty exposure arise?
Map exposure at every point in the transaction flow, including unsecured balances, unsettled trades, margin, collateral, lending and intraday positions. Determine whether the broker becomes principal or counterparty to any transaction, when that happens, and what obligations survive a default or dispute.
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FinCEN describes an OTC foreign-exchange and derivatives give-up arrangement in which a prime broker becomes counterparty to accepted trades. This is a defined example, not a rule for every crypto product; use it as a prompt to ask how the specific transaction documents allocate obligations. See FinCEN’s guidance.
Review collateral and financing terms
For each financing or margin arrangement, document eligible collateral, haircuts, margin-call timing, liquidation rights, dispute procedures and any right to use or rehypothecate assets. Understand close-out netting and set-off provisions in the context of governing law and insolvency advice. Set exposure limits and escalation rules for balances and concentration, including the consequences of a delayed settlement or rapid market move.
Assess financial resilience and insurance
Request available audited financial statements and relevant information about liquidity, capital, related-party exposures, concentration, and material litigation or enforcement matters for the entities that owe or hold assets. Consider whether financial information is current and covers the right legal entity.
For any insurance, establish who is insured, which risks and custody locations are covered, aggregate and per-event limits, exclusions, deductibles, sublimits and claims procedures. Do not describe insurance as a guarantee of recovery unless the policy and contract support that conclusion.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Can the institution oversee the relationship and get out?
Compliance, records and governance
Assess whether AML and sanctions screening, customer and beneficial-owner due diligence, transaction monitoring, suspicious-activity escalation and blockchain analytics are appropriate to the institution and proposed activity. Confirm what transaction data and position statements the institution receives, how valuations are determined, what audit access is available, and how the provider supports regulatory reporting and incident notification.
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Ask how the provider assesses new assets, venues, classification issues and protocol changes; who approves them; and how material changes are communicated. Internally, assign accountable business ownership and independent risk, compliance and legal review, with approval limits, periodic reassessment and triggers for an immediate review.
Test the operating fit and exit plan
Compare genuine provider options against the same questions. A lower trading fee, for example, does not resolve a difference in custody structure, unsecured exposure or ability to withdraw during an outage.
| Comparison area | Questions to resolve |
|---|---|
| Custody structure | Are wallets dedicated or omnibus? What legal and operational segregation applies? Who controls the keys? |
| Counterparty chain | Which entities face the institution at each step? Are balances or trades unsecured? |
| Execution and settlement | Which venues and assets are supported? How are settlement, reconciliation and outages handled? |
| Financing | Which collateral is accepted? What are the haircuts, margin calls, liquidation rights, rates and rehypothecation terms? |
| Legal and regulatory perimeter | Which entity is authorised for each service, asset and jurisdiction? What protections apply to the institution’s specific arrangement? |
| Controls and assurance | Which services and dates do reports cover? What exceptions, user controls or subcontractors are excluded? |
| Resilience | What recovery capabilities, incident communications and service dependencies matter to the institution? |
| Exit | Can assets, positions and records be transferred promptly? What happens on default, termination or a prolonged outage? |
| Total cost | What are the trading, custody, financing, transfer, settlement and ancillary fees? |
Make exit readiness operational rather than theoretical: identify the receiving provider or wallet process, required approvals and records, transfer constraints, fees and the conditions under which withdrawals may be suspended. The contract should explain how positions and assets are returned or transferred at termination and during default; test whether that process can work under stress.
What should the institution retain in its diligence file?
A decision file should connect provider claims to documents, evidence, accountable reviewers and unresolved risks. At minimum, retain:
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- A jurisdiction and permissions analysis for the actual services, assets and locations.
- Contract review and legal analysis of title, segregation, insolvency, collateral rights, return and exit.
- A custody-control assessment, including key management, reconciliation, incident response and continuity.
- A counterparty and financial review covering exposures, limits, statements and insurance terms.
- Independent assurance review, with report scope, period, exceptions and remediation noted.
- Operational reporting requirements, governance approvals and a documented transfer or exit plan.
Reassess the file when the provider, product, asset, jurisdiction, subcontractor or relevant regulatory position changes. A change in any one of these can alter the entity chain, the institution’s exposure or the protections available.
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