Custody, Client Asset Segregation and Tokenised Fund Shares: What Firms Must Demonstrate

Custody and client asset protection are central concerns when securities are represented digitally. Under the FCA’s client asset rules (CASS), firms that hold assets on behalf of clients must segregate those assets, maintain reconciliations, and have plans for client access and redress in the event of failure. Tokenisation raises operational questions—who holds the private keys, how is legal ownership evidenced, and whether the technology layer affects the ability to return assets to clients on insolvency.

Practically, firms adopt models that map token records to regulated custody arrangements: this can include regulated custodians or nominee structures where a regulated entity holds legal title and the token records reflect beneficial interests. Firms must document the legal chain of ownership, reconcile on a frequent cadence, and ensure that arrangements with any technology or infrastructure provider do not undermine segregation. Auditability and independent proof of reserves or holdings are increasingly referenced to establish trust.

Operational resilience, continuity planning and incident response are equally important. Firms must be able to recover records, support client queries about holdings and execute corporate actions. Where novel crypto‑native infrastructure is used, firms must explain to regulators how those systems meet established outcomes for record keeping, reconciliation and client access.

For retail investors considering fractional digital fund shares, custody is a fundamental part of the safety equation. Understanding whether the platform uses an FCA‑regulated custodian, how client assets are segregated and how reconciliations are performed helps retail savers assess the practical protections that exist behind the digital ledger.