Crypto custodians in financial distress

The business model of crypto custodians is relatively new. If these companies fall into financial distress, the question arises as to which legal framework is applicable to them. Since jurisdictions such as the US, the Swiss, the German, and recently also the European Union place crypto custodians under financial supervision, it seems reasonable to assume that the numerous European legal acts for these firms and the recovery and resolution of credit institutions, investment firms and other firms may be relevant (SRMR, BRRD, MiFID II, CRR, MiCAR etc). On the other hand, crypto custodians could be coherently located in the system of European insolvency law. However, the EIR Recast contains an exclusion for certain companies in the financial sector. Having now seen major crypto custodians in financial distress, legal scholars must answer the question of whether one of the legal frameworks is applicable to crypto custodians or whether the European legislature must extend the scope of one of the regimes to include crypto custodians. The study will show that the business model of pure crypto custodians holding crypto currencies in custody is not covered by major European regulations and directives concerning the financial sector but can be covered by the EIR Recast through a narrow interpretation of its scope exclusion. Taking the European legislator's perspective, the paper demonstrates that neither the CRR, SRMR, nor BRRD will lead to coherent results with respect to crypto custodians in financial distress but instead, though unintentional, the application of the EIR Recast. Concerning crypto custodians, the EIR Recast, therefore, seems to be the more suitable regime.