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August 10, 2023

The International Organization of Securities Commissions

Re: Public Comment on IOSCO's Consultation Report on Policy Recommendations for Crypto and Digital Asset Markets


National Futures Association (NFA) appreciates the opportunity to comment on IOSCO's Consultation Report on Policy Recommendations for Crypto and Digital Asset Markets. NFA is a registered futures association pursuant to Section 17 of the U.S Commodity Exchange Act and an affiliate member of IOSCO. NFA is the industrywide independent self-regulatory organization for the U.S. derivatives industry and our global membership includes Commodity Futures Trading Commission (CFTC) registered futures commission merchants, swap dealers, commodity pool operators, commodity trading advisors, introducing brokers, retail foreign exchange dealers and the registered associated persons of these entities. We currently have approximately 3,000 Member firms and 42,000 individual Associate Members.

NFA is solely a regulatory body and we work closely with the CFTC to provide oversight of NFA Members. We do not operate a market nor are we an industry trade association. As a regulator, NFA is a resolute customer protection organization, and we are committed to developing rules and regulatory programs designed to ensure that our Member firms and their Associates deal fairly with their customers and counterparties.

NFA's Oversight of its Members Engaging in Spot Digital Asset Commodity Activities

We recognize that this past year is replete with examples of fraud schemes involving digital asset markets that have caused significant monetary harm to retail customers. Our experience shows that robust requirements and stringent monitoring are essential to protect customers and NFA is committed to protecting customers engaging in the digital asset markets. Over the years, NFA has adopted new rules and requirements to meet the changing landscape of our Members' activities. Specifically, relating to digital asset commodities, NFA has taken significant steps to regulate our Members active in this area. Over five years ago NFA adopted Interpretive Notice 9073 – Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities. As part of this disclosure regime, we require our Members engaged in digital asset activities to provide customers with an NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin and the CFTC Customer Advisory: Understand the Risk of Virtual Currency Trading. Additionally, earlier this year, NFA extended its jurisdiction over Members' spot digital asset commodity activities by adopting NFA Compliance Rule 2-51, which imposes anti-fraud, just and equitable principles of trade and supervision requirements on NFA Members and Associates engaging in activities specifically relating to bitcoin and ether.

Comments on Consultation Report

NFA broadly supports the 18 comprehensive policy recommendations that foster greater consistency with respect to regulatory frameworks and oversight in IOSCO's member jurisdictions to address market integrity and investor protection concerns arising from crypto- asset activities. NFA also agrees that IOSCO's recommendations should be principles-based and outcome-focused.

Although NFA broadly supports the recommendations outlined in the report, NFA requests that IOSCO consider the following comments when finalizing the recommendations and the narrative associated with each recommendation:

  • Chapter 2 - Recommendations on Governance and Disclosure of Conflicts - The Consultation Report acknowledges that many crypto-asset service providers (CASP) operate within a single legal entity or affiliated group of entities that typically engage in multiple functions under 'one roof'. These functions may include exchange trading, brokerage, market-making and other proprietary trading, custody, settlement, lending and other activities. The report further states that conflicts arise from engaging in these activities and functions in a vertically integrated manner. Recommendation 2 specifically states that a regulator should determine whether these conflicts are so acute that they cannot be effectively mitigated and may require more robust measures such as legal disaggregation and separate registration and regulation of certain activities and functions. NFA cautions against a regulator-by-regulator approach to this issue. Rather, NFA strongly encourages IOSCO to provide specific guidance regarding the acute conflicts that cannot be mitigated solely by conflict disclosures, and which will require more robust measures to mitigate. Specific guidance and a holistic approach to the governance and conflicts issues identified in the Consultation Report will help avoid a regulatory race to the bottom.

  • The Consultation Report should mandate that CASPs maintain financial resource or minimum capital requirements, based on their activities and functions, to protect customers and meet their ongoing financial obligations.

  • NFA strongly supports Recommendation 13 that requires CASPs to place client assets in trust or to otherwise segregate them from their proprietary assets. However, we are concerned by the Consultation Report's reference on pages 7 and 32 to a CASP's ability to re-use and/or lend out customer assets with a customer's consent. Specifically, NFA fundamentally disagrees that CASPs should be allowed to engage in these practices with respect to retail customer assets, which should be protected and always held in trust for these customers.

  • Page 29 of the Consultation Report states that CASPs often structure and present themselves as having little or no visible substantive presence within any jurisdiction, thus exacerbating supervisory and enforcement challenges. NFA strongly believes that firms holding retail customer funds should generally have office locations and personnel responsible for preparing and maintaining financial and other records within jurisdictions where they conduct business. Therefore, we advise that IOSCO consider incorporating into a recommendation language similar to NFA Compliance Rule 2-10(b), which applied to CASPs holding retail customer funds would require them to maintain offices and personnel responsible for preparing and maintaining required financial records in each jurisdiction in which they conduct business. This type of physical location requirement may provide relevant regulatory jurisdictions with some protection against CASPs' attempts to avoid their regulatory reach.

  • Recommendation 15 on page 34 of the Consultation Report addresses client asset reconciliations and specifically states that the CASPs should conduct regular and frequent reconciliation of client assets subject to appropriate independent assurance. We believe that a CASP's reconciliation of its clients' assets to its total obligation owed to clients is a critical customer protection. To enhance this protection, IOSCO should consider providing additional guidance, which recommends that CASPs perform daily (not regular or frequent) reconciliation of their clients' assets and liabilities and that regulators should consider employing a mechanism to independently verify daily a CASP's customer assets held at a third-party custodian. NFA further advises that IOSCO's recommendations relating to customer funds protections provide guidance that CASPs should perform due diligence on third party custodians and that third party custodians should acknowledge to regulators that they are holding client assets.

In conclusion, NFA strongly supports consistency in global standards to address key issues and risks identified in crypto-asset markets. If you have any questions concerning this letter, please contact me at

Respectfully submitted,
Karen K. Wuertz
Senior Vice President, External Affairs and Communications

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