When reserve assets are held by a third party: what to do first
When reserve assets sit with a third-party custodian rather than with the issuer directly, the first task is confirming who holds legal title, whether the assets are segregated from the custodian's own estate, and whether that arrangement is documented under Regulation (EU) 2023/1114 (MiCA). Redemption planning, supervisory reporting, and any later change of custodian all depend on that confirmation being settled first. Nothing else on the file is worth opening before this point is closed.
Basis
Regulation (EU) 2023/1114 (MiCA) sets the conditions for maintaining a reserve of assets behind asset-referenced and e-money tokens. It applies whether that reserve sits with the issuer or with a third-party custodian. The obligation does not relax simply because the custodian is a regulated bank or a specialised custody provider.
Regulation (EU) 2023/1113 (TFR) governs the information that must accompany a transfer of funds or crypto-assets. It applies whenever the custodian moves reserve assets between accounts or counterparties, including internal transfers that an issuer might otherwise treat as routine housekeeping rather than a regulated event.
Both regulations sit alongside each other on this question. The reserve obligation under MiCA does not switch off during a transfer, and the information obligation under TFR does not switch off because the parties are related or the transfer is small.
Practical consequence
If the custody arrangement is not documented to the standard these two regulations expect, the issuer cannot demonstrate that the reserve is protected in the custodian's insolvency. That gap does not stay theoretical for long. A supervisor reviewing the offering, or a trading venue assessing counterparty risk, will ask for the custody agreement before asking about anything else on the file.
Missing paperwork at this stage delays every later step. It slows onboarding with new trading venues, it slows any refinancing of the reserve, and it complicates a change of custodian if one becomes necessary. None of that delay is recoverable simply by producing the missing document later; the questions asked during the gap tend to widen rather than close.
What to do first
- Legal counsel requests the current custody agreement and confirms that the segregation clause names the issuer, not the custodian, as beneficial owner of the reserve.
- Finance function reconciles the reserve register against the custodian's own statement, asset by asset, using the same reporting date on both sides.
- Compliance officer checks whether the custodian itself holds the authorisation required to provide custody services and keeps that confirmation on file, dated.
- Legal counsel confirms whether transfers of reserve assets between the custodian and the issuer fall under Regulation (EU) 2023/1113 (TFR) and, if so, that the accompanying information is captured on each transfer.
- Management documents a fallback plan for redemption if the custodian becomes unable to perform, rather than waiting for a supervisor or a counterparty to ask for one.
- Compliance officer sets a recurring reminder to repeat this reconciliation at each reporting cycle, not only at onboarding.
Who decides
No single step above is decided in isolation. Each one feeds a decision that sits with a different party, and the evidence expected differs accordingly.
| Question | Decision maker | Typical evidence |
|---|---|---|
| Whether segregation is adequate | Issuer's compliance function, subject to supervisory review | Custody agreement, segregation clause, account statements |
| Whether the custodian is authorised for the service | The custodian's home supervisor | Authorisation record, public licence register entry |
| Whether a transfer required accompanying information | Compliance officer, subject to review by the transfer's supervisor | Transfer records, information fields under Regulation (EU) 2023/1113 (TFR) |
Different scenarios
If the custodian belongs to the same group as the issuer, the segregation clause needs closer scrutiny. Related-party custody arrangements draw more supervisory attention than arm's-length ones, and the documentation has to answer that scrutiny in advance rather than after a query arrives.
If the reserve includes assets held in more than one jurisdiction, the segregation analysis has to be repeated separately for each jurisdiction. Insolvency protection agreed in one country does not automatically extend to assets booked in another, even under the same custody group.
If the custodian has already changed since the token was first issued, the transfer of custody itself needs its own paper trail, kept separately from the original custody agreement and from the current one. Continuity of protection across the change is not assumed; it has to be shown.
If no written custody agreement exists at all, the priority changes. The first step is no longer reconciliation; it is putting a documented arrangement in place before any other question on this list is addressed.
Limits of this page
This page does not establish whether a specific custodian is solvent, nor whether a specific segregation clause would survive a specific national insolvency procedure. Those questions belong to counterparty and document checks, not to a situation page, and the two should not be confused when a file is opened.
How the firm is set up and its limits explains what this kind of analysis can and cannot cover, before any file is opened.
Where the custodian is based in Denmark, a Counterparty report denmark establishes what is known about that entity from public registers.
Where the custody agreement itself needs checking against a national requirement, a Document report denmark establishes what the document can support and where it falls short.
Where the question is what a Danish authority can confirm about the arrangement, Jurisdiction in Denmark: what can be established sets out what that jurisdiction search can and cannot answer.
Related publications
When the issuer and the platform are related: what covers the adjacent situation, where the counterparty risk sits inside the same group rather than with an outside custodian.
Verified
Reviewed as of 15 March 2025. Primary sources: Regulation (EU) 2023/1114 (MiCA); Regulation (EU) 2023/1113 (TFR).
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Frequently asked questions
What is the first step when reserve assets are held by a third party?
Confirm who holds legal title to the reserve and whether the custody agreement segregates it from the custodian's own estate. Nothing else in the file matters until that point is settled, because every later step assumes the answer to this one.
Which deadline is already running?
No fixed countdown starts automatically the moment a third party takes custody. What keeps running is the reporting cycle the issuer already follows under Regulation (EU) 2023/1114 (MiCA): each periodic reserve statement stays due on its existing schedule, and a change of custodian does not pause it.
Who decides, and on what evidence?
The issuer's compliance function makes the first assessment, based on the custody agreement and the reconciled account statements. A supervisor reviews that assessment against Regulation (EU) 2023/1114 (MiCA) if the offering itself comes under examination.