Common standards for the safe custody of digital assets is a key step for the digitalisation of the financial sector
November 13, 2019
The Capital Markets and Technology Association (CMTA), an independent Swiss association bringing together leading actors from Switzerland's financial, technological and legal sectors will publish common standards for the safe custody of digital assets. CMTA is currently consulting its members on proposed standards for the safe custody of digital assets by professional financial intermediaries.
For the financial industry, the ability to offer professional and high quality solutions for the safe custody of digital assets (i.e., means of payment, investments and other financial assets represented by digital tokens) is a key challenge. Contrary to traditional financial assets, for which custody systems are heavily centralized, digital assets are not kept at a single place, but are recorded on distributed ledgers maintained by a community of participants. Control of these assets is secured by means of so-called "private keys", which are pieces of digital information that are used to cryptographically protect and validate transactions issued on the relevant distributed ledger infrastructure. For digital assets, the control of private keys is consequently of paramount importance. Storage of such private keys, however, is a sensitive matter. Electronic storage devices can be hacked and non-connected devices (used for so-called "cold storage" solutions) can be lost or stolen.
For investors, the availability of high-assurance safekeeping solutions for private keys is therefore essential. However, given the unique nature of digital assets, these solutions significantly differ from those used for traditional financial assets. Whereas the custody of traditional financial assets is subject to detailed regulations, there is currently no generally accepted standards for the safe custody of digital assets. Technology suppliers, end users, auditors, and regulators alike are therefore in an unsustainable situation, wherein no guidelines are available to address these stakeholders' needs.
CMTA's Technology Committee has developed standards to fill this void. The proposed standards detail the manners in which custodians can control client assets on a distributed ledger (e.g. through pooled or segregated digital ledger addresses) and provide minimum baseline requirements and recommendations for the procedures in which the private keys can be generated, stored and recovered in a secure manner.
CMTA is consulting its members on the proposed standards, which will make it possible for the financial industry to adopt common principles that will facilitate the use of digital assets, thereby unlocking significant new opportunities for businesses and investors.
Dr. Jean-Philippe Aumasson, chair of CMTA's Technology Committee and a member of the Executive Committee of Taurus Group, said: "Combining modern encryption technologies with strict key generation and recovery processes enables intermediaries to offer reliable safekeeping solutions to investors. This is a high-value service in a connected economy that is increasingly exposed to fraud and security breaches".
Mr. Fedor Poskriakov, General Secretary of the CMTA and a banking partner at the law firm Lenz & Staehelin, commented: "After the release of a blueprint for the tokenization of equity securities for Swiss corporations and the adoption of anti-money laundering standards for digital assets, CMTA's custody standards will be a further important building block for the development of digital assets in Switzerland. The implications for the Swiss economy and financial sector are difficult to overstate. Ultimately, the digitalization of the financial market infrastructures will simplify companies' access to capital markets, help businesses to raise capital, and contribute to the promotion of innovation, employment and value creation in our country".