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BERMUDA

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

BR 3 / 2025

PART 1GENERAL

3. Application

(1) These Rules apply to client assets held by licensed undertakings who provide custodial wallet services in accordance with section 10(2)(d) of the Act.

(2) Where these Rules apply, a licensed undertaking—

(a) must keep client assets separate from its own assets in accordance with rule 5(2);

(b) must account for the client assets properly and promptly in accordance with rules 15 and 16; and

(c) must implement client assets controls, based on the nature, scale and complexity of its business.

(3) A review of client assets controls, implemented by a licensed undertaking pursuant to paragraph (2)(c), shall be conducted annually by a qualified person who shall prepare a report on his findings.

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

(4) The annual report prepared by a qualified person pursuant to paragraph (3) shall include the following—

(a) related internal accounts and records that readily identify the balances of assets held for each client;

(b) details of the accounts where client assets are held and the relevant agreements with those entities;

(c) details of third parties carrying out any related outsourced tasks and details of any outsourced tasks;

(d) key individuals of the licensed undertaking involved in related processes, including those responsible for oversight of the licensed undertakings requirements in relation to the custody of client assets; and

(e) agreements relevant to establish client ownership over assets.

(5) A copy of the annual report prepared by a qualified person pursuant to paragraph (3) shall be maintained by a licensed undertaking holding a Class F or a Class M licence at its head office, or by a licensed undertaking holding a Class T licence at its principal place of business, for not less than five years and shall be made available to the Authority upon request.

(6) For the purposes of these Rules, a “qualified person” means—

(a) the internal auditor of a licensed undertaking;

(b) the approved auditor of a licensed undertaking; or

(c) such person approved by the Authority in writing to perform the functions of a qualified person under paragraph (3).

4. Meaning of client assets

(1) Subject to this rule, client assets are assets which, in the course of carrying on digital asset business, a licensed undertaking receives or holds on behalf of a client (whether in Bermuda or elsewhere) in respect of a digital asset business agreement entered into with or for a client.

(2) Assets are not client assets if they are immediately due and payable to the licensed undertaking for its own account—

(a) in respect of fees and commissions in a manner which satisfies paragraph (3); or

(b) alternatively, in such case where the obligation of the licensed undertaking in respect of which the assets are so payable to the licensed undertaking has not yet been performed.

(3) Assets are not regarded for the purposes of paragraph (2) as due and payable in respect of fees and commissions claimed to be payable to the licensed undertaking unless—

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

(a) the fees and commissions have been accurately calculated and are in accordance with a formula or on a basis agreed to in writing by the client;

(b) 14 days have elapsed since a statement showing the amount of those fees and commissions has been delivered to the client, and the client has not questioned the sum specified; or

(c) the amount of the fees and commissions have been agreed in writing with the client or have been finally determined by a court or arbitration.

5. Segregation of client assets

(1) A licensed undertaking shall pay all client assets which it holds or receives into a client account and shall do so within the time period specified in rule 6(1).

(2) Client assets and assets belonging to the licensed undertaking must be kept separate from one another.

(3) A licensed undertaking may, with the written consent of the client and in accordance with the terms and conditions of the digital asset business agreement and such other requirements as may be laid down by the Authority, and without prejudice to the client’s right of ownership over his assets held by such licensed undertaking, place and keep such assets in a common pool of identical assets.

(4) A licensed undertaking may deposit client assets into an account or accounts opened with an intermediary.

6. Payments into client accounts

(1) Where a licensed undertaking holds client assets it must either—

(a) pay it as soon as possible (and in any event, not later than the next day following receipt) into a client account; or

(b) pay it out or pay it over in a manner which secures under rule 7 that it is no longer a client asset.

(2) Where client assets are received by the licensed undertaking in the form of an automated transfer, the licensed undertaking must ensure that—

(a) where possible, the assets are transferred into a client account; and

(b) in the event that the assets are transferred into the licensed undertaking’s own account, the assets are paid into a client account no later than the next day after the transfer has settled into the account.

(3) Where a licensed undertaking receives a ‘mixed remittance’ (that is an aggregate sum of assets which is in part client assets and in part other assets) it must pay the full sum into the relevant client account, but must then ensure that, except to the extent that it represents fees and commissions due to the licensed undertaking, the other assets are paid out of the account within one day of the day on which the licensed undertaking would normally expect the remittance to be cleared.

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

Cessation of client assets

7 Assets cease to be client assets if they are paid—

(a) to the client;

(b) to a third party on the instruction of the client;

(c) into an account in the name of the client, not being—

(i) a client account;

(ii) an account opened by the licensed undertaking with an intermediary in accordance with rule 5(4); or

(iii) an account to which the licensed undertaking has otherwise access to; or

(d) to the licensed undertaking itself, where it may properly be so paid under these Rules.

PART 2DEFAULT OBLIGATIONS

8. Purpose of this Part

(1) This Part applies to all client assets held by a licensed undertaking so as to create—

(a) a relationship between the licensed undertaking and the client, under which the licensed undertaking holds client assets for and on behalf of the client; and

(b) a system of pooling the assets of different clients once there has been a pooling event.

(2) Rules 9 and 10 apply whether or not there has been a pooling event, and rules 11 and 12 apply after there has been a pooling event.

9. Nature of client assets held by a licensed undertaking

(1) Whenever the circumstances are that client assets are held by a licensed undertaking in the course of digital asset business activity carried on in Bermuda, the client assets are held in accordance with these Rules by the licensed undertaking for and on behalf of its clients—

(a) upon the terms and for the purposes set out in these Rules;

(b) subject to subparagraph (a), for the respective clients for whom those client assets are held, according to their respective beneficial ownership rights; and

(c) after all valid claims under subparagraph (b) have been met, for the licensed undertaking itself.

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

(2) For the purposes of this rule, “licensed undertaking” includes such other person to whom functions, duties or assets may be delegated or entrusted under rule 10.

Delegating functions and duties or entrusting assets to another person

10 A licensed undertaking shall be required to comply with these Rules even where it passes client assets to an intermediary.

11. Pooling events

(1) The power of a licensed undertaking, in accordance with Part 1, to pay assets into and out of the accounts in which client assets are held is interrupted by the occurrence of a pooling event specified in paragraph (2).

(2) The pooling events are—

(a) the default of the licensed undertaking;

(b) the coming into force of a direction by the Authority in respect of the client assets held by the licensed undertaking; or

(c) the default of an intermediary with which any client assets held by the licensed undertaking are deposited, in which case rule 13 applies.

(3) Notwithstanding paragraph (2), a pooling event will not occur, and rule 13 will not apply, if, on the default of an intermediary, the licensed undertaking repays to its clients or pays into a client account an amount equal to the amount of client assets held on their behalf with that intermediary.

(4) A licensed undertaking shall inform the Authority and all affected clients of any pooling event, as soon as practicable after its occurrence.

12. Pooling

(1) Save as described in this rule, where a pooling event occurs, assets held in all the licensed undertaking’s client accounts are pooled and must be made available to meet the claims of clients in respect of whom client assets are or should be held in those accounts on a pari passu basis.

(2) Where, at the time when a pooling event occurs, client assets from a client account are in the hands of an intermediary, they shall, on their return to the client account, be pooled in accordance with paragraph (1).

(3) Where client assets referred to in paragraph (2) cannot be returned within one month after the pooling event, the licensed undertaking may make distributions from the account in advance of that date if it makes provision for the possibility of such assets not being returned.

(4) If any surplus remains in the pool created by the operation of paragraph (1) after all the valid claims of clients to assets in that pool have been met, that surplus shall be distributed to the licensed undertaking.

(5) Where a licensed undertaking receives assets from a client after a pooling event which, but for that event, would fail to be paid into a client account, those assets—

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

(a) shall be placed in a new client account duly opened after the pooling event; and

(b) shall not be pooled with the assets held in the licensed undertaking’s client accounts at the time of the pooling event.

13. Pooling on default of intermediary

(1) Where client assets are held by an intermediary which defaults or which, following a pooling event by a licensed undertaking, fails to recognise that the assets are client assets held in accordance with these Rules—

(a) the assets shall—

(i) be pooled separately;

(ii) be made available to satisfy the separate claims of the separate clients pari passu; and

(iii) after the claims described in subparagraph (a)(ii) have been satisfied, be paid into the pool created under rule 12(1); and

(b) the pool created under rule 12 shall be applied—

(i) to meet any claims of separate clients that are not separate claims and the claims of other clients (all ranking equally); and

(ii) after the claims described in subparagraph (b)(i) have been satisfied, to meet any unsatisfied separate claims of separate clients.

(2) In this rule—

“separate claim” means the claim of a separate client to the value of the assets that were or should have been held with the intermediary; and

“separate client” means a client whose assets were, or should have been, held with the intermediary.

PART 3INTEREST AND RECORD KEEPING

Interest on client assets

14 A licensed undertaking must specify in writing to a client whether or not interest is payable to the client in respect of client assets, and if so, on what terms.

15. Accounting for and use of client assets

(1) A licensed undertaking must account properly and promptly for client assets and, in particular, must ensure that—

(a) save as permitted by these Rules, client assets and other assets do not become mixed;

DIGITAL ASSET BUSINESS (CUSTODY OF CLIENT ASSETS) RULES 2025

(b) individual transactions can be accurately identified and traced;

(c) the credit standing to the account of each client is calculated each day; and

(d) assets belonging to one client are not used for another client.

(2) Wherever the daily calculation referred to in paragraph (1)(c) reveals an overdraft or that one client’s assets have been used for another—

(a) the licensed undertaking must pay in a sum of assets equivalent to the deficit; and

(b) assets paid in by the licensed undertaking under subparagraph (a) shall be treated as client assets and must not be withdrawn by the licensed undertaking until the client responsible for the deficit has paid in a sum of assets equivalent to the deficit.

16. Reconciliation of accounts

(1) A licensed undertaking shall, not less frequently than once a month—

(a) reconcile the balance on each client account, as recorded by the licensed undertaking, with the balance on that account as set out in the statement issued by the intermediary, covering the period in respect of which the reconciliation is made; and

(b) reconcile the total of the balances on each client account with the total of the corresponding balances in respect of each of its clients, (both totals as recorded by the licensed undertaking).

(2) The reconciliation referred to in paragraph (1) must be performed within 10 days of the date to which the reconciliation relates, and any differences must be corrected forthwith unless they arise as a result of differences in timing between the accounting and settlement systems of the licensed undertaking and the intermediary.

Made this 12th day of February 2025

Chairman Bermuda Monetary Authority

[Operative Date: 12 February 2025]