To keep investor assets safe, the crypto sector should look at the traditional financial industry for guidance, says the World Federation of Exchanges (WFE) in a report.
“Without proper custody controls there is a heightened risk of financial loss, fraud and mismanagement. This undermines investor confidence and the overall integrity of markets,” the industry trade group for securities exchanges and clearing organizations group said in a release.
The WFE proposed a series of best practices for the crypto industry. Recommendations for custody providers include: segregating client assets to protect them in case of a firm’s bankruptcy; properly assessing and addressing conflicts of interest; seeking independent audits; obtaining adequate insurance; and ensuring that risks and terms of custody are clearly disclosed to investors.
“The FTX collapse and longstanding worries about insufficient custody controls in the crypto industry highlight risks to both market integrity and investor protection,” said Nandini Sukumar, CEO of the WFE, in a release.
“Crypto custody providers should learn from more traditional markets that have a track record of functioning well and can start by following the recommendations we have set out today.”