FINMA Tightens Rules on Crypto Custody Risks

Key Highlights

FINMA issued new guidance on how supervised firms must manage crypto custody risks.
The rules emphasize insolvency protection, especially when assets are held with third parties or abroad.
Switzerland continues to pair crypto innovation with strict institutional oversight.

On Monday, the Swiss Financial Market Supervisory Authority (FINMA) issued new supervisory guidance clarifying how banks and licensed firms are expected to safeguard cryptocurrencies as demand for custody services grows across the financial system.

The guidance details how FINMA assesses custody arrangements for assets like Bitcoin and Ether, putting the emphasis on technical resilience, legal certainty, and clear protections for clients if a custodian were to run into trouble.

Custody risks move to the foreground

FINMA noted that holding crypto is not just traditional custody with a new label. Private keys, operational security, and loss prevention demand specialized expertise and tougher infrastructure, making clear that legacy custody models don’t translate cleanly to blockchain assets.

Where institutions rely on third-party or foreign custodians, FINMA warned that legal risks multiply. In insolvency scenarios, customer assets must be clearly segregated so they do not become part of the custodian’s bankruptcy estate, a point the watchdog framed as non-negotiable.

Responsibility stays with licensed firms

FINMA’s point is that banks cannot hide behind third parties. If an institution offers crypto custody, it is on the hook for who holds the keys, how those assets are protected, and what happens if a provider fails. Outsourcing the tech does not outsource the risk.

For Swiss regulators, crypto services are expected to meet the same expectations as traditional finance: clear legal ownership, tight oversight, and a plan that actually works when things go wrong.

Part of a longer regulatory arc

The guidance fits into a longer tightening cycle that’s been unfolding since mid-2024. FINMA has been steadily raising the bar, pulling stablecoin issuers into the same AML orbit as banks while carving out narrow exceptions so innovation doesn’t get suffocated in the process. The direction is clear: experiment if you want, but do it inside the lines.

In parallel, Swiss banks have been testing blockchain-based payments with full legal approval. The takeaway isn’t hesitation, it’s discipline. Regulators aren’t trying to slow crypto down; they’re making sure that as it plugs deeper into the financial system, it behaves like infrastructure, not a side project.

Why it matters

As crypto custody shifts from niche service to core banking function, Switzerland is reinforcing its reputation as a market where digital assets are welcome, but only under institutional-grade controls.

FINMA’s latest move signals to banks and fintech firms that crypto can scale, but only with custody frameworks built to survive stress, insolvency, and cross-border complexity.