The EU financial watchdog has said divergent definitions of safekeeping between regulations and national authorities should be addressed in order to overcome custody challenges for crypto-assets.
A recent paper published by the European Securities and Markets Authority (ESMA) highlighted how there is no harmonised definition of safekeeping and record-keeping of ownership of securities at an EU-level, and would therefore be difficult to apply to a new asset class such as crypto.
ESMA noted the varying definitions of where the safekeeping function should take place across several legislations such as MiFID II, UCITS V and AIFMD.
“When it comes to crypto-assets, a first issue that arises is about the interpretation of what constitutes safekeeping services,” ESMA wrote.
“ESMA’s preliminary view is that having control of private keys on behalf of clients might be regarded as safekeeping services and that rules to ensure the safekeeping and segregation of client assets should apply to the providers of those services.”
The paper highlighted the many ways in which crypto-assets are held in custody, sometimes through ‘multi-signature wallets’ where several private keys are held by different individuals.
ESMA stated national regulators should take into consideration the content of these rules and the way they can still be fulfilled in a distributed-ledger technology (DLT) environment.