Custody
Safekeeping of assets on an owner's behalf. For digital assets it means control of the private keys, so a lost key or a hacked custodian can mean a permanent loss with no one to recover it from.
Where you will meet it
Custody appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Explain what digital assets are and their features as investments
“Volatility is high, custody introduces a failure mode traditional assets do not have, and regulatory treatment differs across jurisdictions and continues to change.”
- Contrast the vehicles through which an investor can gain index-based equity exposure
“Separately managed accounts hold the shares directly, allowing customisation such as tax-loss harvesting or ESG exclusions, but they need scale and add custody and administration cost.”
- Identify the sources of income and the costs that arise when holding and running an equity portfolio, and explain how each affects performance
“Costs include management and performance fees, custody and administration charges, marketing and distribution fees, and trading costs: commissions, stamp duties and other transaction taxes, bid–ask spreads and market impact.”
- Set out the stages of the manager selection process, with due diligence among them
“Qualitative due diligence then has two strands: investment due diligence, covering philosophy, process, people and portfolio characteristics; and operational due diligence, covering trading, custody, valuation, compliance, technology, audits, business continuity and the firm's ownership and stability.”
See also
Practise it
Practise custody until it is automatic: questions that explain every wrong option.
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