What the Cayman Islands tokenised funds reforms mean for trustees’ custody, governance and due diligence obligations
Why tokenisation really matters for trustees
Tokenisation is the process of representing ownership rights in an asset, such as a fund interest, share, bond, piece of real estate or even artwork, as a digital token recorded on a blockchain. Instead of holding a traditional paper certificate or register entry, the investor holds a cryptographically secured token evidencing their interest, which can be transferred, tracked and verified electronically.
Regardless of whether tokenisation becomes the inevitable future of financial markets, the Cayman Islands’ legislative developments make one thing clear: the digital asset sector is no longer experimental. It is maturing and embedding itself within the Cayman Islands’ regulatory framework. For trustees, the landscape is evolving in ways that can no longer be ignored. Embracing these developments and understanding how to manage, safeguard and administer digital assets is becoming an essential part of modern fiduciary practice.
What does all this actually mean for trustees on the ground? In many respects, the trustee’s role remains unchanged, but the tools most definitely have.
Trustees still operate from the same golden rulebook: act in the best interests of beneficiaries, exercise impartial judgement and ensure assets are properly safeguarded, compliant and well documented. The difference is that, instead of holding share certificates or monitoring traditional custodial accounts, trustees may find themselves holding something far more literal: the private keys that control access to digital assets. In the world of digital assets and tokenised interests, whoever controls the keys controls the value.
This means trustees increasingly need to think like a blend of fiduciary, risk manager and cybersecurity officer. It is no longer enough to keep good records; trustees must keep tamperproof records.
Custody of digital assets
One area that is attracting trustees’ attention (and perhaps raising a few heart rates) is custody. Holding digital assets is not like holding traditional securities. A misplaced seed phrase or a compromised wallet can mean the permanent loss of trust property.
The Islands’ VASP regime has responded with stronger requirements for custody providers, ranging from cybersecurity expectations to segregation of client assets. For trustees, appointing a custodian is not just a box-ticking exercise; it is a critical fiduciary decision.
If a trustee decides to hold the keys themselves, the level of responsibility increases again. Controls such as multi-signature approvals, offline storage and appropriate insurance coverage start to matter in very practical ways.
A spectrum of options
This new custody landscape may feel daunting to trustees, but there are numerous options at their disposal, each carrying its own operational and governance considerations.
At the simplest end of the spectrum are elementary self-custody tools that allow trustees to hold and manage private keys directly, provided robust internal controls are in place. This quickly becomes a governance question: who has access, who authorises transactions, where are backups stored and what happens if someone leaves the organisation?
This can be viewed in a similar way to a System and Organization Controls 2 report: before taking on this custody, trustees must ask themselves whether their policies and controls are robust enough to withstand close scrutiny, as if they were being audited.
Further along the spectrum sit regulated custodians operating under the Cayman Islands’ VASP regime, offering institutional-grade infrastructure, enhanced cybersecurity protections, insurance solutions and mandatory segregation of client assets. These providers can add professional oversight while reducing the operational burden on trustees.
For trusts requiring more bespoke governance, multi-signature arrangements provide an attractive middle ground. Trustees can build tailored approval frameworks, such as a three-out-of-five signing threshold, implement tiered authorisation levels and build in strong redundancy and succession planning. In effect, they enable trustees to recreate traditional trust controls using cryptographic tools, without relying entirely on external custodians. No single individual holds unilateral control, and access can be adapted for departures, succession planning or external oversight.
Physical wallets are another practical consideration. Just as it would be unwise to keep bundles of physical cash sitting in the office, the same common-sense principle applies to hardware wallets. They may be small in size, but the value they represent can be significantly larger, often uncomfortably so. In the Cayman Islands, Strategic Wealth Preservation, an international precious metals dealer long known for its vault-grade storage, has expanded its offering to include secure storage for physical wallets and encrypted backups. For trustees, this can provide a reassuring blend of traditional high-security infrastructure with modern digital asset needs.
Practical steps for trustees
The good news is that trustees do not need to reinvent themselves as blockchain engineers; they just need to layer strong procedures and sensible policies over traditional fiduciary instincts.
- A few smart moves include the following:
- Review trust deeds and confirm they permit the holding of digital assets.
- Implement a digital asset policy setting out who holds keys, how wallets are chosen and what ‘good security’ looks like. Be sure to test policies frequently as well.
- Complete due diligence on custodians, as with any other type of custodian.
- Maintain a detailed inventory of what assets exist, how they are accessed and where backups live (backups are not backups if you cannot find them).
- Double check smart contracts, making sure the code reflects the legal terms (and not the other way around).
- Ensure appropriate insurance coverage and incident planning are in place, and advise the insurer as soon as an issue arises. Have a communication plan in place and involve compliance and the regulator early.
- Ensure appropriate anti-money laundering and sanctions screening and monitoring processes are in place, proportionate to the structure and risk profile.
None of this changes the way a trustee administers a trust, but it does require planning, clarity and, ideally, a healthy respect for the fact that digital assets do not forgive careless handling.
Trustees who take the time to understand wallets, keys and custody risks will find they are more than capable of navigating this new landscape. After all, the core job has not changed: protect the assets, follow the terms of the trust and act with care.
This article was first published in STEP Journal, issue 5 2026
