Crypto-asset service providers should place client assets in trust or segregate them: Iosco

REGULATORS should require crypto-asset service providers to place client assets in a trust, or otherwise segregate them from the company’s proprietary assets. 

They should also require these service providers to disclose how client assets are held, said international securities watchdog International Organization of Securities Commissions (Iosco) in a consultation paper published on Tuesday (May 23). 

The highlighted examples are part of the 18 policy recommendations outlined by Iosco. They seek to address various issues which have plagued the crypto industry, including a conflict of interest, lack of client and custody asset protection and  cross-border regulatory protection, among others. 

These recommendations come after a series of investigations into FTX, which revealed a severe lack of measures put in place to protect client assets as well as a conflict of interest, given the company’s multiple service offerings under one roof.

Lim Tuang Lee, assistant managing director of capital markets at the Monetary Authority of Singapore (MAS), who is also the chair of the Iosco Fintech Task Force, said the paper set expectations and guard rails to regulate and supervise crypto-asset markets, which are inherently cross-border in nature.

“Crypto-asset service providers need to address unacceptable conflicts of interest, and take far more seriously the right of clients to have their monies and assets carefully minded and accounted for,” Lim said.

“It is time for regulators to work together across borders and various jurisdictions, to ensure that investor protection and market integrity are upheld in crypto-asset markets.”

Other areas the paper covers also include market manipulation, insider trading and fraud, operational and technological risk as well as retail access, suitability and distribution.

While Singapore already has some crypto legislation in place, MAS’ Lim said in a media briefing on Tuesday that Singapore’s rules will also be in line with those set out by Iosco, though he did not elaborate on these rules. 

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Iosco, an umbrella group of regulators such as the US Securities and Exchange Commission, Japan’s Financial Services Agency, Britain’s Financial Conduct Authority and Germany’s BaFin, is canvassing public opinion on the regulations.

The deadline for feedback on the proposed recommendations is Jul 31.

Iosco plans to finalise standards by the end of the year, and expects its 130 members worldwide to use them to plug gaps in their rule books promptly.