Cryptocurrency – Manage the Risks and Reap the Rewards

The Top 3 covers you need

Many in the exchange business come from the Financial Services Industry and understand that the risks in the cryptocurrency world are similar and need to be approached in the same manner.  

1. Directors’ & Officers’

Linked to professional indemnity this can also be a regulatory requirement to trade in certain jurisdictions. Also, the premium can be lower than the alternative regulatory capital required. Claims against directors are on the increase and the cost of claims is rising. This has been driven by a combination of increased litigation, regulatory and bribery and corruption. As a result, having robust cover in place is essential whether your crypto business is a start-up, more established or needs to encourage non-executives to join the board.

2. Professional Indemnity

Business errors and omissions can and do happen. When they do, as with other financial services, protection is essential. In fact, in certain jurisdictions it is not possible to trade without proving cover is in place to the regulator.

3. Crime

This can be internal as a result of dishonest or fraudulent acts of employees, or external criminals or a combination of both. Whatever the cause of the theft, burglary, or robbery – having cover in place can be huge business differentiator. It provides confidence to clients that the loss of cryptocurrency whilst stored in cold, warm or hot storage is protected.

Your story needs to be about Enterprise Risk Management

Any exchange that requires cover needs to look at their risk holistically to get the right terms and premium. Underwriters want to be confident that you understand your risks, take them seriously and are mitigating against them.

Having an Enterprise Risk Management (ERM) strategy is crucial in helping tell your story in this respect. At Verlingue we have a risk management team which specialises in helping clients put robust Risk Management Protocols (RMPs) in place to help clients secure the right insurance at the right price.

The market is relatively new in insurance terms, but cover is available with many of the wordings showing developments from existing products such as financial risks, cyber, crime and specie. For this reason, underwriters take a similar approach to cryptocurrency.

Physical

This applies to protection around sites with human security patrolling and protecting vaults where cold storage currency is held. In this respect it is similar to a specie policy. In respect of warm and hot storage, insurers require physical protection to be in place for servers and systems, similar to that which they would expect around any other cyber or digital risk.

Human

The internal threat from staff can be negligent or malicious. Either errors in process which allow hackers access, or actively working for cyber criminals. To mitigate against these requires strong vetting and checking of employees as well as education and training programmes on managing the dangers.

Reputation 

Underwriters want to know that you have ‘skin in the game’ and have a desire to protect your brand.  Some firms have even gone as far as setting up hackathons with prize money in a bid to prove to clients and stakeholders how secure they are.

Processes

A key pillar of Risk Management Protocols is the systems and processes that are in place and how they are stress tested. Everything from personnel to defence against financial crime – be that bribery and corruption or money-laundering to storage of private keys and auditable logging. Insurers are keen to see evidence of risk surveys – especially by legal counsel and third parties.