2.13.1. Measures to prevent, detect and report Market Abuse or Financial Crime2.13.1. Measures to prevent, detect and report Market Abuse or Financial Crime

A Digital Asset Trading Facility Operator must:

(a)  ensure that appropriate measures (including the monitoring of transactions effected on or through the Digital Asset Trading Facility Operator’s facility) are adopted to reduce the extent to which the Digital Asset Trading Facility Operator’s facility can be used for a purpose connected with Market Abuse, Financial Crime or money laundering, and to facilitate their detection and monitor their incidence; and

(b) immediately report to the AFSA any suspected Market Abuse, Financial Crime or money laundering, along with full details of that information in writing.

2.13.2. Whistleblowing

A Digital Asset Trading Facility Operator must have appropriate procedures and protections for its Employees to disclose any information to the AFSA in a manner which does not expose them to any disadvantage or discrimination as a result of so doing.

2.13.3. Lending and staking

(1)            A Digital Asset Trading Facility Operator must not offer or provide any facility or service that allows a Member or another user of its facility to lend a Digital Asset to another Person unless it is reasonably satisfied that the Member or user is a Professional Client.

(2)            The prohibition in (1) does not apply to the provision of any Digital Asset to an Authorised Firm as Collateral.

2.13.4. Trading of Digital Assets

(1) A Digital Asset Trading Facility Operator must establish and maintain policies and procedures relating to the trading process to detect and prevent (potential) errors, omissions, fraud, and other unauthorised or improper activities.

(2) A Digital Asset Trading Facility Operator must execute a trade for a Client only if there are sufficient Fiat Currencies or Digital Assets, which are admitted to trading, in the Client’s account with the Digital Asset Trading Facility Operator to cover that trade. This requirement does not apply to any off-platform transactions to be conducted by institutional investors which are settled intra-day.

(3) A Digital Asset Trading Facility Operator should not provide any financial assistance for its Clients to acquire Digital Assets. It should ensure, to the extent possible, that no Person within the same Group as the Digital Asset Trading Facility Operator does so unless for exceptional circumstances which should be approved by the AFSA on a case-by-case basis.

2.13.5. Trading controls

(1) A Digital Asset Trading Facility Operator must put in place risk management and supervisory controls for the operation of its trading platform. These controls should include:

(a) automated pre-trade controls that are reasonably designed to:

(i) prevent the entry of any orders that would exceed appropriate position limits prescribed for each Member and Client;

(ii) alert the user to the entry of potential erroneous orders and prevent the entry of erroneous orders;

(iii) prevent the entry of orders which are not in compliance with regulatory requirements; and

(b) post-trade monitoring to reasonably identify any:

(i) suspicious market manipulative or abusive activities; and

(ii) market events or system deficiencies, such as unintended impact on the market, which call for further risk control measures.

(2) A Digital Asset Trading Facility Operator must be able to:

(a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;

(b) temporarily halt or constrain trading on its facility if necessary or desirable to maintain an orderly market; and

(c) cancel, vary, or correct any order resulting from an erroneous order entry or the malfunctioning of the system of a Member.

2.13.6. Settlement and clearing arrangements

(1) A Digital Asset Trading Facility Operator must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), clearing and settlement of the rights and liabilities of the parties to transactions effected on the Digital Asset Trading Facility Operator’s facilities (being rights and liabilities in relation to those transactions).

(2) A Digital Asset Trading Facility Operator must ensure that clearing and settlement of transactions on its facilities takes place only by means of Fiat Currencies or Digital Assets which are admitted to trading.

(3) A Digital Asset Trading Facility Operator must take all reasonable steps to ensure that finality of settlement is achieved within 24 hours.

2.13.7. Digital Asset Trading Facility Operator Providing Custody of Digital Assets

(1) A Digital Asset Trading Facility Operator which also carries out the Regulated Activity of Providing Custody of Digital Assets or Arranging Custody of Digital Assets must ensure that it complies with the requirements applicable to those Regulated Activities in addition to the requirements that apply by virtue of being a Digital Asset Trading Facility Operator.

(2) Digital Assets held by a Digital Asset Trading Facility Operator Providing Custody are not depository liabilities or assets of the Digital Asset Trading Facility Operator and must be held on trust.

(3) A Digital Asset Trading Facility Providing Custody must segregate the Digital Assets of each Client in separate Digital wallets containing the Digital Assets of that Client only.

(4) A Digital Asset Trading Facility Providing Custody must maintain control of each Digital Asset at all times while Providing Custody.

(5) A Digital Asset Trading Facility Operator Providing Custody must:

(a) have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of Digital Assets issuers and holders, prevent the unauthorised creation or deletion of Digital Assets, and conduct daily reconciliation of each Digital Asset balance it maintains for issuers and holders;

(b) prohibit overdrafts and credit balances in Digital Assets account;

(c) maintain Digital Assets in an immobilised or dematerialised form for their transfer by book entry;

(d) protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;

(e) ensure segregation between its own assets and the Digital Assets of its participants, as well as keeping clear records regarding which Digital Assets belong to which participant; and

(f) identify, measure, monitor, and manage its risks from other activities that it may perform.

(6) A Digital Asset Trading Facility Operator acting as a Digital Asset Custodian must have systems and procedures to enable segregation and portability of the Clients’ assets.

(7) A Digital Asset Trading Facility Operator must:

(a) have segregation and portability arrangements to effectively protect the Clients’ assets;

(b) structure portability arrangements in a way that ensures there is a high probability that the assets of one party will be transferred to another party; and

(c) disclose any constraints, including legal and operational constraints, that may impair its ability to segregate or port the Clients’ assets.

2.13.8. Requirements for a Digital Asset Trading Facility Operator appointing a Third Party Digital wallet Service Provider

A Digital Asset Trading Facility Operator which appoints a Third Party Digital wallet Service Provider to provide custody of Digital Assets traded on its facility, must ensure that the Person is:

(1) an Authorised Firm appropriately authorised to be a Digital wallet Service Provider; or

(2) a Person which is appropriately regulated by a Financial Services Regulator to an equivalent level of regulation to that provided for under the AFSA regime for providing digital wallet services.

(3) When determining whether a Third Party wallet Service Provider is appropriate, the Digital Asset Trading Facility Operator must take into account:

(a) the expertise and reputation of the Third Party wallet Service Provider;

(b) the Third Party wallet Service Provider’s performance of its services to the Digital Asset Trading Facility Operator;

(c) the arrangements the Third Party wallet Service Provider has in place for holding and safeguarding Digital Assets;

(d) the capital or financial resources of the Third Party wallet Service Provider;

(e) the credit-worthiness of the Third Party wallet Service Provider;

(f) any other activities carried out by the Third Party wallet Service Provider; and

(g) anything else that could adversely affect rights of Members and Clients.

(4) A Digital Asset Trading Facility Operator must conduct on a regular basis, and least once every 2 months, reconciliations between its internal records and accounts of Digital Assets and those held by the Third Party Digital wallet Service Provider.

(5) If a Digital Asset Trading Facility Operator appoints a Third Party Digital wallet Service Provider, the Digital Asset Trading Facility Operator must accept the same level of responsibility to its Members and Clients and AFSA as would be the case if the Digital Asset Trading Facility Operator were holding the relevant Digital Assets directly.

Guidance:

If a Digital Asset Trading Facility Operator appoints a non-AIFC firm regulated by a Financial Services Regulator, it must undertake sufficient due diligence to establish that the non-AIFC firm is subject to an equivalent level of regulation as under the AFSA regime in respect of that service.

2.13.9. Requirements in relation to Hot and Cold Digital wallets

A Digital Asset Trading Facility Operator must ensure that not more than 30 % of the Retail Client’s Digital Assets are stored in Hot Digital wallets.

2.13.10. Obligation to report transactions

(1) A Digital Asset Trading Facility Operator must report to the AFSA details of transactions in Digital Assets traded on its facility which are executed, or reported, through its systems.

(2) The AFSA may, by written notice or guidance, specify:

(a) the information to be included in reports made under the preceding paragraph; and

(b) the manner in which such reports are to be made.

2.13.11. Obligation to report to the AFSA

(1) A Digital Asset Trading Facility Operator must submit to the AFSA a quarterly report that should include its financial statement, its income statement, a calculation of its relevant capital resources and a statement of its compliance and any non-compliance with these Rules.

(2) A Digital Asset Trading Facility Operator must provide the following information to the AFSA within 6 months after financial year end:

(a) the number of prospective clients which the Digital Asset Trading Facility Operator rejected during the reporting period;

(b) the number of Clients which were offboarded during the reporting period;

(c) the number of Clients where enhanced due diligence was applied;

(d) the total number of the Digital Asset Trading Facility Operator’s Clients;

(e) the number of Clients originating from a high risk jurisdiction;

(f) the number of Clients on-boarded on a face-to-face basis;

(g) a description of any changes to the Client onboarding process;

(h) the number of suspicious transaction reports filed during the reporting period;

(i) the number of individuals supporting the MLRO;

(j) when the Digital Asset Trading Facility Operator’s risk assessment was last updated and if there were any additional risks;

(j) (if applicable) the number of private keys held;

(k) (if applicable) whether Client’s Digital Assets are held with a third party custodian;

(l) whether the Digital Asset Trading Facility Operator forms part of a Group, and if so, the Group structure;

(m) whether the Digital Asset Trading Facility Operator entered into any resource sharing agreements and, if so, the names of the counterparty/company;

(n) whether the Digital Asset Trading Facility Operator outsources any of its functions and, if so, any changes to the functions outsourced and to which companies;

(o) an overview of any involvement of the Digital Asset Trading Facility Operator’s shareholders in the day-to-day operations of the Digital Asset Trading Facility Operator during the reporting period; and

(p) an overview of any instances of market abuse encountered by the Digital Asset Trading Facility Operator during the reporting period.

(3) The AFSA may request a Digital Asset Trading Facility to submit other returns. The AFSA from time to time may prescribe the required list of returns to be submitted and the returns templates to be used.

(4) Returns submitted to the AFSA must be signed by two (2) Approved Individuals and one of them must be approved to exercise the Finance Officer function.

2.13.12. Obligation to notify the AFSA

If a Digital Asset Trading Facility Operator becomes aware, or has a reasonable ground to believe, that it is or may be (or may be about to be) in breach of any of these Rules, it must:

(a) notify the AFSA in writing about the breach and the relevant circumstances immediately and not later than within 1 business day of becoming aware of it. 

Guidance:

In dealing with a breach, or possible breach, of this part, the AFSA’s primary concern will be the interests of existing and prospective members and clients, the potential adverse impact on market participants, and market stability. The AFSA recognises that there will be circumstances in which a problem may be resolved quickly, for example, by support from a parent entity, without jeopardising the interests of Members, Clients and other stakeholders. In such circumstances, it will be in the interests of all parties to minimise the disruption to the Digital Asset Trading facility Operator’s business. The AFSA will normally seek to work cooperatively with the Digital Asset Trading Facility Operator in stressed situations to deal with any problems. There will, however, be circumstances in which it is necessary to take regulatory action to avoid exposing market participants, Members, Clients and other stakeholders to the potential adverse consequences of the Digital Asset Trading Facility Operator’s Failure, and the AFSA will not hesitate to take appropriate action if it considers this necessary.