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Cryptocurrency managers are waiting for regulators to act

June 7, 2020

The cryptocurrency custody business is becoming more competitive and lucrative every day, The latest announcement comes from Switzerland, where local family bank Maerki Baumann announced on May 29 that it has expanded its cryptocurrency services by introducing cryptocurrency storage and trading.The private bank first announced its cryptocurrency initiatives in 2019 by expanding commercial account services to blockchain companies.

Thanks to regulatory approval from the Swiss Financial Market Authority, Maerki Baumann will initially offer trading and custody services in the five most important cryptocurrencies, including Bitcoin, Ether, XRP, Bitcoin Cash and Litecoin. The bank was announced one month after the Swiss Association for Capital Markets and TechnologyFind a common industry standard for managing and keeping crypto assets.

Nickname as “Custody Standard for Digital Assets”, The document tries to clarify to what extent the storage of digital assets differs from the storage of traditional assets. After identifying the differences, the CMTA established the basic operational and security requirements for cryptocurrency custody providers.

Custody of all

Cryptocurrency managers are waiting for regulators to actCryptocurrency managers are waiting for regulators to act

It appears that major cryptocurrency providers have turned their attention to the cryptocurrency management sector as a number of deals and partnerships have been announced in recent months, including cryptocurrency exchange with which Bitfinex has announced a partnership. The London-based digital asset custodian Koine, While cryptocurrency lending company Genesis Capital took over the custodian Volt, crypto derivative platform Bakkt announced on May 18 that it had brought in more from 70 cryptocurrency custody clients.

Despite increasing custody activities Cryptocurrency custody laws remain uncertain in all jurisdictions. A recent study by researchers from the Leiden Law School in the Netherlands explicitly points out that managing asset recovery in the event of bankruptcy is a problem area.

While the experts They believe regulation is needed in cryptocurrencies. Given the uniqueness of crypto assets, many regulators continue to treat coins and tokens almost similarly to traditional assets.

Traditional laws and cryptocurrencies

In order to understand why traditional laws are not suitable for crypto assets, Trustology CEO and co-founder Alex Batlin must first consider why these laws were originally enacted and tell Cointelegraph:

“The main reason for the regulations is that a custodian made a mistake, stole money, or performed improper operations at some point. These errors are generally not easy to spot because most of the records are kept internally by the company.”

That’s why, Most rules speak of very strict records and transparency, because it is easier to solve problems if they are identified early enoughHowever, this is based on the premise that Only companies that keep records have access to the business books in their care, and therefore, They must constantly provide funds to clients and regulators to review their internal accounts, “However, the blockchain technology that powers crypto assets is not haunted by this mystery because the records are visible to everyone.”Batlin said.

Digital assets naturally offer greater transparency compared to conventional assets, even so, It is worth noting that the level of transparency varies from custody model to custody model. this, along with other unique features, Like property and immutability, it justifies laws specifically designed for cryptocurrencies.

The CMTA standard is the starting point

The digital asset standard proposed by the CMTA divides the different models that custodians can use. The document focuses on two institutional custody models. This includes distributed and grouped accounting accounts or DLAs.

In a cluster model, the custodian bundles the client’s assets in one or more accounts. This model is used by most cold storage depot solutions. According to the CTMA, this model can take two main forms:

  • Place customer resources in one or more grouped DLAs
  • Combine a custodian’s own assets with the client’s assets in one or more DLAs

In an assigned DLA model, the custodian assigns one or more DLAs to a single customer. In other words, although each DLA can be assigned to different assets, it cannot be credited to more than one customer. Batlin believes that these classifications provide information about the DLA inside various models and should help regulators develop appropriate laws.

For example, if customers can track funds in pooled DLAs if they know the addresses, they cannot know who is moving the funds, and if they are authorized, it is different for separate models. Customers can independently monitor their respective accounts and irregularities immediately detect.

Furthermore, With separate accounts, compliance with anti-money laundering regulations may be more transparent than with group accounts. “The regulatory requirements should therefore treat combined models differently than separate accounts.”to Batlin.

The risk of strict regulation

At best, the CMTA document can only be a starting point to suggest how the sector should be regulated.some industry participants believe that the latest developments in custody technology (multi-party computing) are not taken into accountKevin Lehtiniitty, Technical Director and Product Director at Prime Trust, spoke to Cointelegraph about the challenges of dealing with rules in different regions:

“The rules are very legal. The way we do business in the US is different from the way we do business in Europe and Japan. However, due to government regulations, blockchain assets require a standard, because they’re really global assets. ” Regulators are more of a regulatory than a legal standard. You have to take a patient and measured approach, otherwise you run the risk of stifling innovation. “

An example of this problem occurred with Liquid cryptocurrency exchange. After switching to the MPC custody solution, the exchange stated that MPC would allow it to reduce its dependence on the cold store by up to 90% while maintaining a “zero-compromise security level”. Despite efficiency gains, the exchange had to 100% of its Japanese-based counterparts Keep customer funds in the cold store only under local law, “so regulatory inequalities would make some regions less competitive than others”Michael Shaulov, CEO and co-founder of Fireblocks, a provider of asset transfer networks, told Cointelegraph, adding:

“Although the standard is a good step forward, it is not advancing the introduction of the latest technology and may result in certain custodian banks receiving offers that are not as secure or operationally efficient as in other regions.”

Current status of the provisions on the storage of cryptocurrencies in various jurisdictions

In general, applicable regulations treat cryptocurrency managers around the world much like traditional asset holders, regardless of the specificity of cryptocurrencies. The more advanced regulations go so far as to define what constitutes cryptocurrency storage / or set guidelines for memory allocation between online and offline wallets.


ANDl New York Treasury or NYDFS, as one of the best known and most active financial regulators in the world, was one of the first regulators to take a step to put the cryptocurrency and crypto payment industry on a leash. by granting a license, Bitlicense, Cryptocurrency giants Coinbase and Gemini are currently licensed to the law, however, for the most part Integrates only cryptocurrency companies into NYDFS ‘already solid financial support.

At Bitlicense, custodians must maintain a USD surety or trust account as collateral for customer funds. The NYDFS superintendent determines the amount to be held as collateral, Yet, The law prohibits custodians from selling or transferring clients’ assets without their permission.


The U.S. state of Wyoming is the only known geographic region with an advanced legal framework for the storage of cryptocurrencies. the The status goes beyond online and offline storage requirements and also includes specially designed provisions that address the uniqueness of crypto assets. in November 2019, Wyoming unveiled a number of optional custody rules that cover certain cryptocurrency ownership issues, Forks, drops of air and I repeat Clarification that custodian banks cannot use clients’ assets without their consent.

This differs from the safekeeping of traditional assets, in which the owners are de facto creditors, whose custodian banks secretly do business with clients’ assets, e.g. B. Loans and new mortgages. In addition, the law is clear when it determines that “Any ancillary or ancillary income” related to the digital assets held will be credited to clients, e.g. B. Revenue from forks, drops of air, betting, and other events that change the value of an asset.


The country’s main financial regulator, FINMA, is one of the world’s most active cryptocurrency regulatorsl last year the The Federal Council has published a draft law on digital assets in relation to custody, This is mainly based on the management of the client’s assets in the event of bankruptcy.

The project changes the Swiss Collection and Insolvency Act in such a way that the insolvency proceedings must exclude the assets of customers, even if they are held together on one or more accounts with the assets of the custodian. This is to solve the challenge of proof of membership due to the fact that crypto assets are bearer assets compared to traditional securities.


As of January 1, 2020, Germany required cryptocurrency administrators to license cryptocurrency administrators after the implementation of the 5th Money Laundering Directive, which forced the member states of the European Union to submit, to the same anti-money laundering requirements as conventional financial companies.

The German regulations for the storage of crypto continue to develop, Yet, The German supervisory authority, the federal supervisory authority, has so far only taken measures to define a custodian bank and what constitutes regulated custody activities. It is unclear whether BaFin will develop laws to take account of the uniqueness of crypto assets.


After Japan was in the middle of cryptocurrency fever in 2017, it quickly began to regulate cryptocurrency activities after threats of money laundering and terrorist financing became apparent and every exchange in Japan wanted to operate.You first need a license from the Financial Services Agency, the country’s main financial regulator , receive. The country currently has 23 FSA-approved cryptocurrency exchanges.

In 2020 The FSA expanded its regulatory oversight of cryptocurrencies by amending the country’s payment services law to include cryptocurrency custody., because of which it regulates for cryptocurrency exchanges where custodians must register as cryptocurrency exchanges, even if they do not mediate the sale and purchase of cryptocurrencies.

The law also requires custodians to keep most of their clients’ assets offline and separate, with no more than 5% of the funds included in hot wallets., and even the provider must have the same amount of cryptocurrencies as collateral in their own offline environment.