Most people vet an OTC desk by comparing quotes. That is the least informative test available, because price is the one thing a bad counterparty can match easily and the one thing that matters least if the trade does not settle.
The risks that actually cost money are structural: an unlicensed counterparty whose proceeds your bank rejects, a settlement sequence where you move first with no protection, a custody arrangement you did not ask about, or an authorisation that lapsed between your last trade and this one. None of those show up in a quote.
This is a working checklist. Each point gives you the question to ask, what a competent answer sounds like, and what the point is protecting. Run it before your first trade with any desk, and re-run points 1 to 3 annually.
Stage one: does this counterparty legally exist for this purpose?
1. The exact legal entity
Ask: What is the full legal name of the entity I will be contracting with, and what is its registration or licence number?
Good answer: An immediate, specific answer with a number, volunteered without friction, plus a pointer to where you can verify it independently.
Why it matters: Brands and licensed entities are frequently different things. A marketing site can reference a group licence held by an affiliate that is not the party facing you. Desks that publish their licence numbers openly and direct clients to the public register are signalling something structural about how they operate; treating the question as an inconvenience signals the opposite.
2. Current authorisation, verified by you
Ask: Which regulator, which activity permissions, and is this a full licence or in-principle approval?
Good answer: Named regulator, named activity categories, explicit confirmation of full licence status — which you then confirm yourself on the register rather than taking on trust.
Why it matters: Authorisations are granted per activity. A firm licensed for advisory is not thereby licensed for brokerage. In-principle approval does not permit servicing clients at all, yet it appears in public materials in a way that reads like being licensed.
Check it on the day, every year: authorisation status changes without marketing sites changing. Since MiCA’s transitional period ended on 1 July 2026, lapsed EU authorisation has become a live operational risk rather than a theoretical one — at least one major crypto payments provider is reported to have lost EU authorisation on that date while continuing to operate through non-EU entities. A desk you cleared eighteen months ago is not a desk you have cleared.
3. Jurisdictional match
Ask: Does your authorisation cover serving a client of my type, in my jurisdiction?
Good answer: A precise answer, and a willingness to say no. Registration in one regime does not authorise activity in another.
Why it matters: A desk may be properly licensed somewhere that does not extend to you. Different regimes set different bars — US desks typically operate through federal money services business registration plus state-level money transmitter licensing, EU desks under MiCA, Swiss intermediaries under VQF supervision, Dubai desks under VARA. The label "regulated" tells you nothing without the jurisdiction attached.
Stage two: what am I actually buying?
4. Principal or agent
Ask: On this trade, are you taking the other side as principal, or routing my order as agent?
Good answer: An immediate, unambiguous answer either way. Both models are legitimate.
Why it matters: When a desk quotes a firm price as principal it is taking your risk onto its own book, which requires inventory and capital. An agent routing elsewhere carries no such risk, and the difference surfaces when the market moves between your acceptance and their fill. Not knowing which you are in is the problem, not the model itself.
5. Quote mechanics
Ask: Is the quote firm and executable, how long is it live, and is it all-inclusive?
Good answer: A firm price with a stated validity window — some desks fix quotes for as little as ten seconds — and explicit confirmation that network fees and conversion costs are inside the number.
Why it matters: Informal phone negotiation with no locked quote is where a promised tight spread balloons at execution. An RFQ process gives you an executable price you can compare. And a quote that excludes the transfer cost is not the same quote as one that includes it.
6. The all-in rate
Ask: Divide total currency paid by total asset received. What is that single number, expressed against the reference rate?
Good answer: The desk can produce it without hesitation and does not object to the comparison.
Why it matters: How a desk decomposes its price into spread, fee and network cost is presentation. The quotient is the price. Expressing it as basis points from the reference — for AED trades, the dirham’s peg near 3.6725 — makes competing quotes comparable regardless of how each is packaged. Request from two or three desks in the same window, since sequential quotes across an afternoon are a time series rather than a comparison.
Stage three: how does the money actually move?
7. Settlement sequence
Ask: Who moves first, and what protects the party that does?
Good answer: A clear proposal, and willingness to tranche a first trade so neither side carries the full exposure.
Why it matters: Every OTC trade contains a moment where one side has parted with value and the other has not. At institutional size that moment deserves explicit structure rather than trust. Tranching — splitting into portions and alternating who moves first — is the single most effective control available on a first trade and costs nothing but a few extra minutes.
Reported incidents in the sector illustrate the exposure: a desk defaulting on tens of millions in settlements after a funding partner collapsed, and a multi-million dollar trade lost through a counterparty using an unsecured hot wallet. Both are settlement-process failures rather than pricing failures.
8. Custody model
Ask: Where are client assets held, are they segregated, and who is the custodian?
Good answer: A named arrangement — self-custody by the client, integrated custody in segregated accounts, or a regulated third-party custodian — with the model stated plainly.
Why it matters: Third-party regulated custody offers the strongest protections and often insurance, at a typical cost in the region of 0.5% to 2% annually, while adding another counterparty. Integrated custody is cheaper and concentrates risk with the desk. Custody is separately licensed in most regimes, so if a desk claims to hold assets, verify that specific permission rather than assuming it comes bundled with brokerage.
9. The banking chain
Ask: Which bank will the fiat leg settle through, and in whose name?
Good answer: A named institution, settlement to an account whitelisted during onboarding, and a value date stated explicitly.
This is the point most people skip and the one that most often breaks a trade: banks treat your desk’s regulatory status as their own first line of due diligence. Fiat arriving from a supervised, named intermediary is a known category of risk. Fiat arriving from an unregulated counterparty is an anomaly that triggers enhanced due diligence and frequently a freeze. Your desk’s licence does not merely give you recourse — it determines whether your settlement completes cleanly at the other end.
Why it matters: It also means an unlicensed desk is a broken link in the Travel Rule chain, since originator and beneficiary data must accompany transfers between regulated providers. Tokens routed through an unlicensed intermediary can arrive at a licensed destination and be frozen pending questions you cannot answer.
Stage four: will this counterparty still be here?
10. Financial standing
Ask: Can you provide audited financials, evidence of capital adequacy, or proof of reserves?
Good answer: Something substantive — audited accounts, a regulatory capital position, or an attestation — rather than an assurance.
Why it matters: Trading bilaterally means direct exposure to the counterparty’s solvency. If a desk defaults mid-settlement, recovery options are limited and slow. Regulated regimes impose minimum capital that scales with activity, which is one reason licensing functions as a proxy for durability: a firm carrying real regulatory overhead has something substantial to lose from misconduct.
11. Compliance capability
Ask: How do you handle Travel Rule data, source-of-funds review, and transfers to self-hosted wallets?
Good answer: Specific processes, named tooling, and certifications where held — information security standards and independent audit are reasonable things for a serious desk to have.
Why it matters: A desk with weak compliance is not a lighter-touch relationship, it is a contamination risk. The same discipline that lets a desk settle quickly is what keeps your own flow clean when your bank or regulator asks questions. Expect enhanced due diligence on self-hosted wallet transfers — that is the framework working, not obstruction.
12. Concentration and exit
Ask: What happens if I want to stop, and what is my exposure if you fail?
Good answer: A clear dispute process, a named regulated entity answerable for it, and no structural lock-in.
Why it matters: A relatively small number of liquidity providers, custodians and venues handle a large share of institutional digital asset volume, so stress at a single entity has outsized effects — as 2022 demonstrated. A common institutional guideline is to keep no more than 10–15% of trading volume with any single desk. Running two or three relationships also keeps your pricing honest.
Running the checklist
Not every point carries equal weight. A practical way to use this is to treat the first stage as pass or fail and the rest as scored.
Stage | Points | Treatment |
|---|---|---|
Legal existence | 1–3 | Pass or fail — no score compensates |
Commercial terms | 4–6 | Scored; compare across desks |
Settlement | 7–9 | Point 9 is close to pass or fail |
Durability | 10–12 | Scored; weight by ticket size |
Scale the depth to the exposure. A one-off mid-five-figure trade justifies points 1 to 3 and 7. A recurring institutional relationship settling millions justifies all twelve, documented, with an annual re-run of the first stage.
Answers that should end the conversation
Cannot or will not name the contracting legal entity
Offers to skip identity verification, for any reason
A quote materially better than everyone else’s, offered to a new counterparty
Refuses to tranche a first settlement
Proposes settlement at a location other than its registered office
Requests payment to an account not whitelisted at onboarding, or named differently on the day
Suggests splitting a trade to stay below reporting thresholds — structuring is an offence in itself
Offers to trade on behalf of a third party who is not present and verified
Cannot explain what happens if the trade goes wrong
The pattern underneath most of these: each is an offer to make the transaction less visible or less documented. A desk competing on discretion about your trade from the market is normal and is the product. A desk offering discretion from its own regulator is telling you what it is.
The short version
Verify the exact legal entity and its current, activity-specific authorisation yourself, on the day, every year. Establish whether you face a principal or an agent and get a firm all-in quote you can compare. Structure the first settlement so neither side carries full exposure. Ask which bank the fiat leg runs through, because your desk’s licence determines whether your proceeds arrive or get frozen. Then spread your flow across more than one relationship.
Price is the easiest thing to compare and the least protective. Everything on this list is harder to check and matters more.
Disclaimer: This checklist is general information, not legal, financial or investment advice, and is not a substitute for professional due diligence. Regulatory frameworks, authorisation status and market practice change frequently — verify current requirements with the relevant regulator and take qualified advice before contracting or transacting at scale.
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