The Insurance Line in a Custody Agreement, Read Closely
The exposure is assuming insurance covers your loss. Most policies cover a narrow set of events and a fraction of assets.
Custody insurance is advertised as reassurance and structured as a narrow commercial policy. The gap between the two is where the exposure sits.
What is usually covered
Theft of assets from cold storage through physical compromise. Insider theft, sometimes. Damage or destruction of key material.
These are real risks and they are the smaller ones.
What is usually not covered
Insolvency of the custodian. Loss of your credentials. Transfers you authorised, including those you were tricked into authorising. And in many policies, anything in hot wallets, which is where day-to-day balances sit.
The last of these matters most, because it is where most customer assets are at any moment.
The limit question
A policy covering a hundred million dollars at a venue holding several billion covers a small percentage of client assets. It is not per customer.
In a loss large enough to matter, the policy is shared across all claimants. The marketing figure and the per-customer figure are different numbers by orders of magnitude.
Who the insured party is
Usually the custodian, not you. The custodian claims and is made whole; whether that reaches you depends on your contract with them and on their solvency.
A policy naming the venue as beneficiary is a policy protecting the venue’s balance sheet, which indirectly protects you and is not the same thing.
What to ask
Which events, what limit, hot or cold, who is the insured, and who is the underwriter. Five questions, and most venues will answer at most two.
What would have to be true for insurance to be the main protection
A per-customer limit, naming customers as beneficiaries, covering insolvency and hot wallets. No retail arrangement I have seen does all four.
How to read the claim in marketing
As evidence that the venue has engaged with risk seriously enough to buy a policy, which is a positive signal. Not as a guarantee that a loss will be made good.
The signal is real and the guarantee is not.
What matters more
Segregation, a regulator and operational controls. A venue with segregated client accounts protects assets in an insolvency, which is the event insurance usually excludes.
Platforms that name their custodian let you assess the entity actually holding the keys, and Collect & Exchange, which is licensed in Cyprus, is subject to rules that exist regardless of what any policy says.