MiCAR and Sub-Custody: What You Need to Know

Sub-custody is a common practice in traditional finance, where institutions entrust client assets to reliable third parties. The same principle applies to digital assets. However, under the Markets in Crypto-Assets Regulation (MiCAR), sub-custody isn’t a legal term; it’s treated as a form of outsourcing, with clear rules on how and when it can be done. For simplicity, we use “sub-custody” in this article to refer to custody outsourcing under MiCAR.

In practice, this typically means working with a licensed partner to manage essential custody tasks such as the secure storage of private keys. These are unique codes that act like a digital signature, proving ownership and enabling movement of assets on the blockchain. Think of the private key like a key to your online safe. If you lose it, no one can help you get in. Outsourcing this responsibility allows licensed institutions to reduce technical complexity, expand market access, and focus on their core business.

Why Sub-Custody Matters Now

This model becomes especially relevant as MiCAR takes full effect across the European Union. Banks, brokers, and fintech platforms are securing licenses to offer crypto-related services under MiCAR. Obtaining the license is the first key step, but many institutions do not intend to build custody infrastructure from scratch and instead plan to partner with regulated providers, like Tangany, to handle the technical complexities.

As a regulated crypto custodian, we support banks, brokers, and fintechs with secure storage, onboarding, asset transfers, staking, and on-chain accounting to meet operational and compliance needs.

This kind of partnership model allows licensed institutions to meet regulatory requirements without managing wallets, keys, or blockchain integrations themselves. It is not only practical, it is often faster, more secure, and more scalable. For many institutions, the logic is simple: secure the CASP license to gain market access, then rely on a trusted custody partner to deliver the infrastructure. Sub-custody offers exactly that option.

Sub-Custody in Traditional Finance

In traditional finance, sub-custody enables global institutions to work with local custodians for safekeeping, recordkeeping, and settlement. This setup reduces complexity, helps meet local compliance, and shares operational risks.

Applying Sub-Custody to Digital Assets

The same logic extends to digital assets. Rather than managing cross-border stocks and investments, a sub-custodian in digital assets handles key management and underlying blockchain infrastructure.

Depending on the provider, keys may be stored offline (cold), semi-connected (warm), or online (hot). Institutions remain responsible for services but outsource the underlying technology.

This system avoids the need for costly infrastructure and provides access to advanced capabilities like token handling, integrations, and secure transfers.

How MiCAR Changes the Rules

MiCAR provides legal clarity to sub-custody for the first time in the EU. It allows licensed crypto-asset service providers (CASPs) to outsource custody tasks, but the legal responsibility remains with the licensed provider. A compliant sub-custody setup must include:

MiCAR does not treat outsourcing as risk-free. Even if you outsource custody, you are still responsible. You need to pick carefully and stay involved when choosing the right sub-custodian for your institution.

Addressing Common Concerns

This model comes with trade-offs, but these can be managed with a well-structured setup and the right partner. A sub-custodian’s onboarding or asset acceptance rules, essentially the criteria for who and what they allow into their system, may be more restrictive than yours. Aligning on risk expectations early on helps avoid future friction.

Reputational risk, where your name is affected by a partner’s mistake, is also a consideration. However, clear contracts and regular oversight can help mitigate this exposure. 

Another key factor is whether your chosen sub-custodian meets MiCAR's strict eligibility criteria. Under EU rules, only regulated providers, such as licensed CASPs or financial institutions under MiFID or CRD, can take on sub-custody functions. Outsourcing to an unregulated tech provider, even one with excellent infrastructure, would not satisfy MiCAR requirements. 

With proper planning and accountability, sub-custody remains a secure and scalable option for institutional digital asset services.

When Sub-Custody Is the Right Choice

Before delegating custody services, your institution must be properly licensed as a crypto-asset service provider (CASP) under MiCAR, specifically for the provision of custody and administration of crypto-assets on behalf of clients. This regulatory approval is a prerequisite for any sub-custody arrangement and ensures that legal responsibility stays with the licensed entity. If your company has not yet secured this license, this should be the first step.

Once this foundation is in place, partnering with a regulated custodian becomes especially valuable when speed, cost efficiency, and simpler day-to-day operations are top priorities. It suits institutions that:

• Want to launch crypto services quickly

• Are not ready to manage infrastructure in-house

• Prefer working with regulated partners to reduce internal burden

For many, sub-custody is a long-term strategy rather than a temporary fix. With the right setup, it supports scale, security, and compliance without sacrificing agility.

Final Thoughts

Sub-custody offers a clear and regulation-friendly way for institutions entering the digital asset space. With the right partner, it delivers speed without cutting corners and responsibility without unnecessary risk.

Are you interested in sub-custody or not sure which setup fits your business best? Contact us today.

If you’d like to learn more about MiCAR, check out our MiCAR Resource Hub, a deep dive into everything you need to know.