Do E&O and Cybersecurity Insurance Cover Cryptocurrency for RIAs?

Do E&O and Cybersecurity Insurance Cover Cryptocurrency for RIAs?

As cryptocurrencies and digital assets become increasingly integrated into investment portfolios, Registered Investment Advisers (RIAs) must ensure they have the right insurance coverage. Many advisers assume that their standard Errors & Omissions (E&O) or cybersecurity insurance policies will protect them against risks associated with digital assets—but this is often not the case. Let’s break down what RIAs need to know about insurance coverage for cryptocurrency.

Errors & Omissions (E&O) Insurance: Does It Cover Crypto?

E&O insurance protects RIAs from claims related to professional negligence, misrepresentation, or errors in investment advice. However, when it comes to cryptocurrency, most traditional E&O policies do not automatically cover digital assets.

• Exclusions Are Common: Many insurers exclude coverage for digital assets due to their volatility, regulatory uncertainty, and potential for fraud.

• Special Endorsements May Be Available: Some insurance providers offer riders or endorsements to extend coverage for advisory services related to cryptocurrencies.

• Review Policy Definitions Carefully: If an RIA provides advice on Bitcoin, Ethereum, or other digital assets, it’s crucial to confirm whether those assets fall under covered securities in the policy’s terms.

Cybersecurity Insurance: Protection Against Crypto-Related Cyber Risks?

With the rise of cyber threats such as hacking, phishing, and ransomware, cybersecurity insurance is a must for RIAs. But does it protect digital assets?

• General Cyber Policies May Be Insufficient: Many cybersecurity policies focus on data breaches and business interruptions but may not cover cryptocurrency theft or hacking incidents.

• Specific Crypto Coverage Needed: If an RIA holds or advises on crypto, the policy should explicitly cover hacks, theft, and fraudulent transfers of digital assets.

• Custodial & Exchange Risks: Some insurers offer coverage for losses due to third-party custodians or exchanges being breached, but this is not always included by default.

Key Questions RIAs Should Ask Their Insurers

1. Does my E&O policy explicitly exclude or include cryptocurrency-related claims?

2. Are there available riders or endorsements that cover advisory services related to digital assets?

3. Does my cybersecurity insurance cover theft or hacking of cryptocurrency assets?

4. Am I protected against claims if a third-party custodian or exchange I use is hacked?

5. How does my policy define “digital assets” and “custody,” and how does that impact my coverage?

The Bottom Line

If your RIA firm provides advice on or interacts with cryptocurrency, it’s essential to have tailored insurance coverage that accounts for the unique risks of digital assets. Many traditional E&O and cyber policies either exclude or inadequately cover crypto-related claims, making it crucial to work with an insurance broker experienced in RIA-specific risks.

By proactively reviewing and updating your policies, you can ensure that your firm is protected against the evolving risks of the digital asset landscape.