Institutionalize crypto markets now: There must be compliance controls

In order to ensure the continued and healthy growth of digital asset markets, it is critical to expand the market share of institutional crypto trading.

Digital asset markets embracing this will realize that better controls will attract more institutional liquidity, and organizing behind a governing set of control principles is where to start.

The Association for Digital Asset Markets, or ADAM - a consortium of digital asset market players established in 2018 - took the lead in November 2019 by publishing its "Code of Conduct." Its code, which is a must-read for digital asset markets, has eight primary tenets: compliance and risk management, market ethics, conflicts of interest, transparency and fairness, market integrity, custody, information security and business continuity, and Anti-Money Laundering and Countering the Finance of Terrorism.

Even Wyoming, boasted as the state with the most progressive digital asset regulatory framework in the United States, modeled its digital asset statutes on Bermuda's.

Bermuda's "Code of Practice" provides straightforward governance, compliance and risk management controls specific to digital asset markets.

For market integrity, particularly for U.S. digital asset markets subject to Commodity Futures Trading Commission regulation, Cboe Futures Exchange's "Rulebook" provides a well-organized resource.

Bermuda's "Digital Asset Custody Code of Practice" defines standards for digital asset private-key custodians across safekeeping, transaction handling and operations.

The SEC's "Customer Protection" rule and CFTC's customer fund segregation rules are poorly adapted to digital asset markets, as has been noted by both FINRA and the SEC. For cybersecurity controls, New York State Department of Financial Services' "Cybersecurity Requirements for Financial Services Companies" offers a well-rounded checklist, but for custody security, Bermuda's "Custody Code of Practice" is the best resource.

"Must have" references for chief information security officers in digital asset markets include the National Institute of Standards and Technology's "Security and Privacy Controls," "Key Management," "Cryptographic Key Generation" and "Cybersecurity Event Recovery" guides.

It is time for digital asset markets to take the bull by the horns and start to break the regulatory log jam by leveraging ADAM's principles and the above resources.