The Geneva-based Capital Markets and Technology Association (CMTA) has released a common industry standard for the custody and management of digital assets. The CMTA’s „Digital Assets Custody Standard“ (DACS), announced on April 30, 2020, aims to clarify the differences between the storage of cryptocurrencies and traditional assets and to establish basic security and operational requirements for industry players. The DACS is intended to fill a gap, as the custody of digital assets, unlike the traditional custody of assets, is not yet subject to clear minimum requirements in these two matters.
Crypto storage requires a new approach
The CMTA has emphasized that the storage of digital assets is significantly different from traditional assets, which typically use centralized systems and don’t rely on cryptographic mechanisms. For crypto, investors need high assurances that the decentralized infrastructure for storage is well developed and resistant to loss, theft or hacking. The document states:
“The DACS establishes a baseline upon which customers and auditors alike can rely to assess a custody solution or provider. To that aim, the DACS’ RRs are defined and formulated to be, as much as possible, verifiable, auditable, as well as implementation- and asset-agnostic. By essence, the list of RRs presented in this DACS is not comprehensive.”
Specifically, the CMTA has described in its DACS a number of custody models for digital assets, including Pooled Digital Ledger Accounts (DLAs) and Allocated Digital Ledger Accounts, Sub-Custody, and Private DLAs. Financial institutions such as banks can manage the self-custody of their digital assets through a digital ledger account managed with various DLA models. However, other players in the financial industry, such as pension funds, will have to work with a qualified digital asset custodian that meets a number of requirements to store users‘ assets.
Industry consensus needed for Crypto Custody
The CMTA’s General Secretary Fedor Poskriakov, a partner at Swiss law firm Lenz & Staehelin, underscored that the new document represents the Swiss financial industry’s first step towards reaching a consensus on common standards for the custody and management of digital assets:
“The digitalization of the capital markets infrastructures is accelerating. In that context, the launch of the Digital Assets Custody Standard represents a key milestone, as it is the first initiative of the Swiss financial industry to agree on a common standard for custody and management of digital assets. This will greatly contribute to the emergence of fully digital capital market infrastructures, including integrated custody and secondary trading venues. The benefits of the digitalization of the financial industry are such that the evolution towards decentralized infrastructures seems inevitable.”
Alongside establishing a baseline for custody, the CMTA has outlined some of the benefits it sees in the use of DLT for financial markets. In particular, the association points to the technology’s value for small and medium enterprises (SMEs) for simplifying and democratizing financing mechanisms.
In CMTA’s view, blockchain can enable SMEs to issue and trade securities on decentralized platforms and to make use of disintermediation and new digital infrastructure to gain access to markets usually reserved for larger market participants.
Dr. Jean-Philippe Aumasson, Tech Committee Chair at the CMTA and co-Founder at Taurus Group, concludes: “The DACS will contribute to a greater maturity in the technological and procedural aspects of digital assets custody. Leading auditing firms, custody solutions suppliers, and regulated financial firms have joined forces to accelerate the evolution of the financial industry towards decentralized infrastructures.”
CMTA is a non-profit, independent Swiss association founded in Geneva in 2018 with the aim of promoting the adoption of distributed ledger technologies (DLT), such as blockchain, and digital assets in the financial markets. One of the main objectives of the association is to promote the issuance and trading of traditional capital market instruments such as equity or debt securities in the form of digital tokens. The CMTA also seeks to adopt standards and systematize good practices at the regulatory, accounting and technical levels, in order to facilitate the treatment of digital assets by financial intermediaries. Its aim is to bring together players from various sectors of the Swiss economy, including finance, technology and law.
Download CMTA’s Digital Assets Custody Standard (DACS).
Numerous other associations and federations are also working on standards in the field of custody. Global Digital Finance (GDF), an industry membership body that promotes the adoption of best practices for crypto assets and digital finance technologies through the development of conduct standards, conducted a Code of Conduct for Cryptoassets which includes Principles for Custody “Custodial Wallets”.