NFA Recommends Additional Requirements for Proposed IOSCO Crypto Policy Guidance
Commentary by Steven Lofchie
NFA offered additional recommendations to IOSCO on proposed policy guidance for regulators and crypto asset services providers ("CASPs").
As previously covered, IOSCO provided recommendations to "support jurisdictions seeking to establish compliant markets for the trading of crypto or ‘digital’ or ‘virtual’ assets." The recommendations are intended to promote international consistency in regulatory frameworks "given the cross-border nature of the markets, the risks of regulatory arbitrage and the significant risk of harm to which retail investors continue to be exposed."
In a comment letter, NFA expressed support for "consistency in global standards to address key issues and risks identified in crypto-asset markets." NFA recommended that IOSCO:
- provide specific guidance on "acute conflicts" that cannot be mitigated by conflict disclosures alone;
- establish financial resource or minimum capital requirements for CASPs;
- incorporate requirements for CASPs to maintain offices and personnel responsible for preparing and maintaining financial records in "each jurisdiction which they conduct business"; and
- require daily reconciliation made by CASPs of their clients’ assets and liabilities. Further, NFA expressed concern that IOSCO would permit CASPs to use customer assets for proprietary purposes; NFA stated that customer assets should always be held in trust for the customers.
Commentary
Ordinarily, a trade association might be expected to raise significant cross border issues as to international regulatory recommendations. In the case of crypto, the U.S. regulators are relatively hostile to the product, as compared to regulators in other jurisdictions. Perhaps the industry hopes that the recommendations of foreign regulators will spur the U.S. regulators into allowing some path forward.