A model of decentralised oversight for the digital asset industry with an example antimoney laundering/know-your-customer standard

Abstract

The financial industry makes wide use of data standards for both subjects — people and firms — and objects — digital assets and messages. Having the correct data is critical for achieving operational and compliance goals. Rarely employed, however, are management standards that define the obligations of subjects. In traditional finance, the need for such standards is supplanted by compliance with rules-based regulations. Decentralised finance presents a new paradigm that is not necessarily optimally overseen in the traditional way. This paper explores the potential usefulness of industry-defined ISO management standards for decentralised oversight of the digital asset industry. ISO standards are known to promote the diffusion of norm-driven practices and responsible innovation, and to potentially reduce costs and facilitate global trade. The paper includes a simple, theoretical model to verify a firm’s adherence to such standards as a way to establish trust when needed. The appendix presents an example management standard for anti-money laundering/ know-your-customer procedures, which defines obligations with respect to customer onboarding and transaction monitoring, similar to traditional banking regulations, as well as the travel rule. It follows the structure and style of ISO 27001. Firms could potentially be audited against such a standard (potentially alongside others) as a way of signalling their trustworthiness.