Custodians vs. technology providers: Why the right choice matters

The key distinction lies in regulatory responsibility: institutions opting for self-custody through a technology provider must hold an Australian Financial Services Licence (AFSL) and implement the associated controls themselves. In contrast, custodians hold the license and manage compliance, significantly reducing the regulatory burden for institutions.

With ASIC’s proposed updates to INFO 225 and the requirement for digital asset platforms to obtain an AFSL, institutions are facing growing compliance obligations. For most, custodianship offers the strongest foundation for security, compliance, and long-term scalability.

Digital Asset Custodians vs. technology providers: A refresher

So, what are custodians and technology providers, and how do they differ?

Custodians

A digital asset custodian is a trusted third party that securely holds digital assets on behalf of their clients. With registrations and licenses from relevant regulatory bodies, custodians provide safekeeping, compliance with jurisdictional regulations and institutional-grade security to keep assets secure.

Often branching out beyond pure custody, many custodians offer value-added services that connect participants into the wider digital asset ecosystem, such as off-exchange settlement, yield-generating opportunities and access to staking.

Technology Providers

Technology providers (specialising in custody) offer the infrastructure and software for institutions to manage the custody of their own assets, providing secure storage and management solutions without holding client assets themselves. However, under this model, institutions must obtain and manage their own AFSL and ensure compliance independently.

The key differences

Now that we’ve outlined what a custodian is vs what a technology provider is, let’s explore the key differences:

Why institutions are moving towards custodians

As regulatory oversight increases and security concerns persist, more institutions are opting to appoint a custodian to look after their assets. By doing so, they benefit from:

• Regulatory alignment – custodians operate within AFSL and INFO 225 frameworks, ensuring compliance without institutions needing to manage internally.
• Institutional-grade security – custodians provide secure storage and recovery options, mitigating the risks associated with lost or compromised assets.
• Reduced operational burden – by choosing a custodian, institutions eliminate the need to build in-house security, compliance, and governance teams, freeing up resources for business growth.
• Risk mitigation & insurance – Unlike technology providers, custodians often offer higher-grade insurance coverage for digital assets.

The future of custody in Australia

With Australia’s digital asset regulatory framework tightening, institutions can no longer afford to take a passive approach to asset security. The risks of self-custody are growing, and the need for regulated, institutional-grade solutions is clearer than ever.