Capital Markets Board Establishes ‘Reserve Evidence’ Regulations for Crypto Asset Platforms
New Regulations for Crypto Asset Service Providers: A Move Toward Transparency
The Capital Markets Board (CMB) has introduced a set of principles aimed at enhancing transparency and accountability among crypto asset service providers. Before these firms can apply for operational licenses, they must adhere to structured proof of reserve protocols.
Key Highlights from the Announcement
The CMB’s weekly newsletter detailed the new regulations, emphasizing that crypto asset service providers must engage independent audit organizations at least once every three months. Contracts for these audits can be consolidated to cover multiple periods throughout the year.
Under the guidelines, an auditor can inspect the reserve evidence for up to 12 consecutive semesters for the same service provider, while one chief auditor is limited to four semesters of reporting for the same entity. This ensures a fresh perspective and reduces potential conflicts of interest.
Mandatory Audit Information
Upon signing the audit contract, crypto asset service providers will need to submit crucial documentation for evaluation. Information required includes:
- A list of crypto assets held.
- Current valuation of these assets.
- Details regarding the networks where assets are stored.
- Access controls in place for asset security.
In addition, providers must present data related to customer cash balances, the market value of crypto assets on their platform, and organizational details pertaining to storage and banking.
Rigorous Audit Procedures
The audit process will involve the examination of all assets kept in liquid reserves, with the results reported separately for clarity. It’s expected that 100% verification of assets under review will be standard practice.
Auditors will choose two specific dates for asset verification, though these will remain undisclosed until the day prior to the audit. This measure intends to ensure genuine asset availability.
Final Steps in the Audit Process
After completion, the audit report will be finalized and delivered to the appropriate authority within ten working days. Following this, a report will also be sent to the CMB within 15 working days, ensuring that the board of the crypto asset service provider has a direct line of communication with regulatory bodies.
This new auditing framework is reflective of a growing international focus on transparency in the cryptocurrency sector, aiming to establish trust and mitigate risks associated with asset management in the digital realm. The CMB’s initiatives suggest a significant step toward a more secure and regulated environment for crypto assets, fostering greater confidence among investors and stakeholders alike.
