A new frontier for board accountability

The rapid rise of digital assets brings new momentum, but also pressure, to Jersey financial services businesses. Whether your firm is administering structures with digital asset exposure or providing services to Virtual Asset Service Providers (VASPs), effective governance is critical to managing the heightened risks these activities present.

Given that most governance frameworks were originally designed around traditional assets, boards now face the challenge of adapting their oversight models to accommodate digital asset complexities. In this post, we highlight the key challenges that boards are likely to face when overseeing digital asset activity, and the practical steps that are needed to stay ahead.

For a broader overview of the legal and regulatory risks around digital asset administration in Jersey, see our related article: Legal and governance risks in the administration of digital assets in Jersey.

Why traditional governance models fall short

The unfamiliar infrastructure and the rapid pace of change in digital assets are placing new and unforeseen pressures on existing governance frameworks. Many boards are now tasked with overseeing structures that operate in unfamiliar territory, which raises practical challenges that conventional models weren't designed to handle.

Key areas of strain are starting to show:

Technical complexity Blockchain wallets, private key custody, smart contracts and token issuances all require specialised understanding. While adapting to these technologies presents operational challenges, misunderstanding or mismanaging them can lead to serious reputational and legal consequences.

Unclear responsibility In many cases, it's not obvious who controls what. Who has access to digital wallets? Where are the private keys stored? Who is responsible if something goes wrong? Traditional governance models don't always map neatly onto decentralised systems.

Documentation gaps In many cases, existing governance documents and administration agreements weren't drafted with digital assets in mind. That doesn't necessarily make them wrong, but it does mean they may need careful review to ensure they stand up to current regulatory expectations and fiduciary standards.

Overreliance on external expertise It's natural to lean on advisers or third-party specialists when navigating unfamiliar ground. But while expertise can be outsourced, responsibility cannot. The JFSC's revised Outsourcing Policy (2024) is clear: regulated entities remain fully accountable for any outsourced activity, and regulatory responsibility cannot be delegated. Directors must ensure that any external input is met with informed internal challenge and active oversight, otherwise, blind spots and liability risks can quickly build.

Key areas boards must review

For boards overseeing digital asset structures, now is a good time to revisit governance frameworks with fresh eyes. The goal isn't to reinvent the wheel, but to ensure existing controls are fit for a fast-moving and high-risk environment.

Here are a few key areas to check in on:

Board understanding Directors should have a working grasp of digital asset risks and how they map to their responsibilities under Jersey regulation. A baseline level of fluency helps ensure meaningful challenge and oversight.

→ Consider short training sessions or targeted updates from trusted advisors.

Digital wallet and key governance Clear policies around digital wallet access, private key control and contingency planning are essential. Boards should understand where responsibility sits and what protections are in place.

→ Ask for a walkthrough of how digital assets are held, who has access, and, most importantly, what happens if access is lost.

Delegation and oversight Where digital asset functions are outsourced or delegated, ensure there's clear reporting and that the board maintains visibility over performance and risks, keeping in mind the requirements of the JFSC's Outsourcing Policy

→ Review outsourcing agreements and request regular reporting summaries from key providers.

Governance documentation Review key documents to ensure they reflect the realities of digital asset structures, particularly where new risks or technical processes are involved.

→ Work with legal advisors versed in this space to audit and update policies where needed.

Training and awareness Regular updates and training can help board members and key staff keep pace with the sector's rapid evolution.

→ As a baseline; make digital assets a recurring topic at board meetings and schedule annual refresher sessions with a qualified third party.

Taking the time to revisit these areas now and implementing a process for ongoing review will give your board greater confidence in its oversight role, and help ensure your governance framework stands up to both regulatory expectations and real-world risk.

Meeting regulatory expectations

The JFSC has been clear that digital asset activity is subject to heightened scrutiny. Classified as a "sensitive activity" under the Sound Business Practice Policy (SBPP), it attracts more intensive supervision than many other areas of financial services.

Financial services firms engaged in digital asset activities, especially those acting for issuers or VASPs, should be prepared to demonstrate that their governance and oversight are up to standard. That includes showing they have the right controls and documentation that reflects the risks specific to this space.

Recent guidance, including the guidance note on tokenisation of real-world assets, underscores the regulator's attention on how boards approach competence, accountability and operational readiness.

Firms should expect active engagement from the JFSC and be ready to show how they're responding to the challenges of a fast-evolving environment.

Looking at what's ahead

With more adoption, more risk and more complexities as this industry evolves, the governance demands of digital asset structures are only going in one direction. For Jersey boards, this means stepping up to meet regulatory expectations and to provide the kind of informed, proactive oversight that protects reputation and delivers long-term value.

If it's been a while since your governance framework was properly stress-tested, now is a good time to take stock.