Custody and Safeguarding for Tokenised Fund Shares: How the Permanent Operating Regime Shapes Arrangements

The Permanent Operating Regime (POP) being developed for digital securities builds on established prudential and conduct principles while addressing features unique to tokenised instruments. Custody and safeguarding sit at the heart of that framework because tokenised fund shares combine legal entitlements with digital representations and technology-dependent transfer mechanics. Regulators are focused on who holds legal title, how beneficial ownership is recorded, the segregation of client assets and the arrangements that prevent loss or unauthorised transfer of tokens or associated private keys.

Practically, that scrutiny translates into expectations for clear contractual arrangements, audited custody relationships, and resilient operational controls. Firms operating platforms or providing custody will need documented reconciliation processes between the digital ledger and the legal register, procedures for incident response and disaster recovery, and controls around key management where cryptographic keys are used. Where traditional custodians are used alongside specialised cryptoasset custodians, there will be demand for interoperability, defined escalation paths and independent audit trails.

In insolvency scenarios, the legal structure that sits behind the token determines whether retail investors can expect segregation of their entitlement or exposure to the platform counterparty. The POP’s emphasis on transparency and record-keeping is intended to reduce uncertainty around client rights and expedite recovery where problems occur. For retail investors considering fractional digital share investments, clarity about custody, segregation and contingency arrangements is therefore critical: these operational protections directly influence the practical security of ownership and the likelihood of orderly transfer or recovery if a platform fails.