Analysis of Guanjian Supervision and Compliance Event Analysis of 2024 (2)

Click to read:>2024 Q1 web3 blockchain security situation, anti -money laundering analysis review (1)
Elven’s report will focus on two key topics, provide comprehensive insights on the recent regulatory development of major jurisdictions, and provide practical guidance for effective internal control to manage the digital assets in the field of financial fields.

First of all, the report will explore key supervision and compliance incidents of well -known financial centers such as Europe, Dubai, Singapore, and Hong Kong in the first quarter of 2024, and provide insights on the continuous development of the digital asset supervision environment.

Secondly, the report will conduct a comprehensive review of the internal control framework of cryptocurrencies from a financial perspective, emphasizing the importance of the implementation of strong internal control and reconciliation processes to effectively manage digital assets, reduce risks and ensure profits.

>European, Dubai, Singapore and Hong Kong well -known financial centers>Key supervision and compliance incidents in the first quarter of 2024

*This article is limited. Please refer to the complete report.

Cryptocurrency internal control framework (financial perspective) and reconciliation

From a financial perspective, the internal control framework of the encryption entity focuses onEnsure the accuracy, reliability and integrity of financial reports and transactions.Cryptocurrencies are still the core part of the framework.

Cryptocurrency internal control framework (financial perspective)

1. Cryptocurrency custody:

-This must be stored separately and their backups, and protects them from internal and external threats.

-The strong measures have been implemented to protect private keys and backups throughout the life cycle.

-Endenrate written procedures, outline the steps that the main wallet should take to back up and restore the goals.

-In the termination of the contract, an agreement must be formulated to solve the situation where individuals who have the right to access wallets and/or private keys are fired.

2. separation of responsibilities:

-The responsibilities of different functions such as trading, financial management, accounting, and reconciliation are clearly divided to prevent conflicts of interest and fraud.

-The authority and approval process of financial transactions include restrictions on the permissions of transactions.

According to PricewaterhouseCoopers “Cryptocurrency Custody: Risks and Control in Auditer’s Perspective”,& lt; & lt; The encrypted entity should ensure that only the authorized or approved employees can initiate the sales of cryptocurrencies -at least the principle of dual control & gt; & gt;

3. Accounting policy and procedures:

-Cer clear accounting policies and procedures for management, classification and reporting of financial transactions related to transaction, deposit, withdrawal, charging and commission.

According to Ernst & Young’s “Code of Application of International Financial Reporting for Crypto asset holders”,& lt; & lt; encrypted assets have different terms and conditions.The purpose of holding encrypted assets is different between different entities, and even between the business model in the same entity holding the crypto assets is different.Therefore, accounting treatment will depend on specific facts and situations, and related analysis may be complicated & gt; & gt;

-Chiroly record transactions accurately and timelyly according to the U.S. recognized accounting principles (GAAP) or other applicable accounting standards.

Update in August 2023-August 2023-Invasive Assets — Capital assets (sub-theme 350-60) released by FASB: Accounting and Disclosure of Crypto assets,

& lt; & lt; For the annual reporting period, the revision in this update requires the entity disclosure of the following information:

The changes in the activities of crypto asset holdings during the summary report period include increasing (and increasing activity descriptions), disposal, and profit and loss.

· For the disposal of any encrypted assets during the reporting period, the difference between the disposal price and the cost foundation, and the description of the activity description of the disposal

· If the profit and loss is not presented alone, it is necessary to point out that the benefits of these profit and loss in the income statement should be pointed out.

· Determination of the cost foundation of encryption assets & gt; & gt;

4. Financial report:

-Che regular preparation of the financial statements, including the balance sheet, profit and loss sheets, and cash flow sheets to provide transparency and understand the financial performance of the exchange in depth.

-E independent verification and reconciliation of financial data to ensure accuracy and integrity.

-Coly obeys the requirements of supervision reports, including submitting financial reports to the relevant authorities.

Elven professional encryption accounting software generated asset -liability table page

Elven professional encryption accounting software generated major holding pagenoodle

5. Asset -liability management:

-D monitoring and managing assets and liabilities to maintain liquidity and solvency.

-Regular check assets and liabilities balance, including customer funds, transaction reserves and operating funds.

-Re risk assessment and management strategies to reduce potential losses that may cause market volatility, credit risk and operation failure.

According to the International Securities Regulatory Commission’s “Proposal of the Policy Policies of Cryptocurrencies and Digital Assets Market Policy”,

& lt; & lt; encryption entity should:

1) Separate customer asset custody or other ways to separate from their own assets.

2) Disclosure related information to customers with clear, concise and non -technical language:

· Customer asset holdings, and arrangements to protect these assets and/or their private keys;

· Whether to use an independent custodian, a child custodian or a related party custodian (if any);

· Customer assets summarize or gather in the comprehensive customer account, the right to summarize or collect assets by individual customers, and any losses risk of losses generated by any collection or summary activities;

· The risks generated directly or indirectly (for example through cross -chain bridges) to process or mobile customer assets; and

· The complete and accurate information of the obligation and responsibility of encrypted entities using customer assets and private keys, including repayment clauses and risks involved.

3) With their own systems, policies, and procedures, regular and frequent reconciliations on customer assets under the appropriate independent guarantee.

4) Adopt appropriate systems, policies and procedures to reduce the risk of customer asset loss, stolen or unable to access.& gt; & gt;

6. Internal audit and compliance:

-In internal audit functions to evaluate the effectiveness of internal control, identify defects, and recommend improvement measures.

-A compliance monitoring to ensure compliance with regulatory requirements, industry standards and internal policies.

-The external audit conducted by an independent auditor to provide relevant financial report reliability and internal control to the relevant financial reports to the stakeholders and regulators.

7. Fund management:

-Afflying the cash flow, including funds, customer deposits and withdrawal requests received from transaction activities.

-A management cash reserves and investment policies and guidelines for excess funds.

-On control funds transfer and payment to prevent unauthorized transactions and fraud.

Elven professional encryption accounting software generated by the fund management page

8. Comply with regulatory requirements:

-Coly adhered to applicable financial regulations, including anti -money laundering (AML), understanding your customers (KYC), and consumer protection laws.

-Regular monitoring and update to ensure the changes in the supervision requirements and the best practice of the industry.

9. Employee training and publicity:

-The training program aims to educate employees to understand financial control, compliance requirements and ethical standards.

-The propaganda activities and promote integrity, transparency and responsible culture in the organization.

10. Continuous improvement:

-Continant review and evaluation of financial control and processes to determine areas that need to be strengthened and optimized.

-Se establish a feedback mechanism and collect the opinions of employees, auditors, regulators and other stakeholders to achieve continuous improvement.

The framework aims to promote financial stability, transparency, and trust in cryptocurrency entities, thereby enhancing investors’ confidence and market integrity.

Requirements in the Singapore Financial Administration (MAS)

Digital payment token service provider to customer assets

In the context of daily reconciliation,

Explore cryptocurrency reconciliation (core of the framework)

1. What is cryptocurrency reconciliation?

Cryptocurrency reconciliation refers to the process of comparison and verification of transaction data from multiple sources to identify differences or lack of transactions.This task is particularly challenging due to the complexity of various wallets, exchanges, chains, and tokens.It may involve the matching transaction amount, date, address, and other related details to ensure that all transactions are correctly accounting.

2. How to carry out cryptocurrencies?

Web3 usually uses cryptocurrency accounting software that can generate daily reporting reports.

Elven professional encryption accounting software generated cryptocurrency reconciliation report

3. Why is cryptocurrency reconciliation important?

-Chole regulatory requirements

“Consultation Documents on Digital Payment tokens’ proposed supervision measures” (November 2023)

The Singapore Financial Authority (MAS) requires the digital payment token service providers to check the customer’s assets daily and retain the transaction records, and maintain the separate account book and record for each customer to record the detailed information of customer assets at any time.

-The accuracy of financial records

For cryptocurrency exchanges and financial institutions, providing transparent and accurate transaction records can establish customer trust.The reconciliation reflects the commitment to responsibility and integrity, and enhances the reputation of service providers.

According to the Suggestions on Protecting Customer Assets,& lt; & lt; Principles 1 -Intermediary agencies should save accurate and latest customer asset records and accounts in order to determine the exact nature, amount, location and ownership status of customer assets at any time, and which customers hold.The way to save records should also be used as audit clues.& gt; & gt;

-The trust with related stakeholders to attract investors to invest

Ensuring the accuracy of transaction records is the basis of financial integrity.The reconciliation helps to verify that all transactions have recorded and calculated correctly, reducing the risk of errors or differences.

References

1. ESMA75-453128700-52 Mica Consultation Paper

https://www.esma.europa.eu/sites/default/files/2024-01/ESMA75-453128 700-52_Consultation_PAPER crypto-ssets_as_financial_inStruments.pdf

2.DIFC Annunces Enactment of New Digital Assets Law, New Law of Security, and Related ADEENTS to Select Legislation

https://www.difc.ae/whats-n/news/difc-annunces-enactment–date-assets-law-News

3. Explanatic Brief: The Financial Institute (Miscellaneous ADments) Bill 2024

https://www.mas.gov.sg/news/speeches/2024/explanatic-hief-the-financial-institutions-amiscellaneous-ADENDMENTS-BILL-2024

4. SFC Warns Public of Suspicious Crypto-Related PRODUCTS “FLOKI Staking Program” and “Tokenfi Staking Program”

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr12

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr6

6. SFC Warns Public of Suspicious Crypto-Related Product “YieldNodes.com MasterNode Pool”

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr34444444pr34

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr14

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr50

https://apps.sfc.hk/edistributionweb/gateway/en/news-nnoundments/news/doc?refno=24pr48

10. SFC Warns Public Against UnlicenSED Virtual Asset Trading Platform by

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr47

11. SFC Warns Public of BitForex for Suspect Virtual Asset-Related Fraud

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr40

12. SFC Warns Public of Suspicious WebSites ImperSonating Licensed Virtual Asset Trading Platforms

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr39

13.

https://apps.sfc.hk/edistributionWeb/gateway/en/news-nnoundments/news/doc?refno=24pr37

14. Stablecoin Isuer Sandbox

https://www.hkma.gov.hk/ews-nd-Media/insight/2024/03/20240312//2024/03/20240312/

15. Crypto Custody: Risks and Controls from An Auditor’s Perspective

https://www.pwc.ch/Insights/digital/Crypto-Custody-risks-ndtrom-an-Auditors-perspective.html

16. Accounting by Holders ofcrypto Assets

https://assets.ey.com/content/dam/ey-sites/ey-n_gl/topics/ey-pply-Ifrs-crypts- update-pdf2021.pdf

17. Intangibles-Goodwill and Other-Crypto Assets (SUBTOPIC 350-60)

https://www.fasb.org/page/showpdfathfath=asu%202023-08.pdf& Title=acc ionNDANDATS%20PDATE%202023-08 — t — — — — —. er — Crypto%20ASSETS%20 (Subtopic%20350-60)

18. POLICY RECOMMENDATIONS for Crypto and Digital Asset Marketsfinal Report

https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf

19.

https://www.mas.gov.sg/publications/Consultations/2022/Consultation-PAPER-On-regulatory-MEASURES-PORGITAL-TOAYEN-Services.

20.

https://www.iosco.org/library/pubdocs/pdf/ioscopd436.pdf