DAC8 Reporting for Crypto Brokers

Crypto brokers — entities that execute trades on behalf of clients, often in over-the-counter (OTC) markets or through direct dealing — are generally expected to fall within DAC8's reporting scope. Brokerage services typically involve acting as an intermediary in crypto-asset transactions, which aligns with the directive's definition of a Reporting Crypto-Asset Service Provider (RCASP).

Brokers Within the DAC8 Framework

DAC8 broadly captures entities that provide services to exchange or transfer crypto-assets on behalf of others. Brokers who buy or sell crypto-assets as principal or agent for their clients should expect to be classified as RCASPs. This includes:

• OTC desks that execute large trades directly with counterparties.
• Brokerage platforms that route client orders to exchanges or liquidity providers.
• Introducing brokers that facilitate client access to crypto-asset markets through partner platforms.

The precise classification may depend on the broker's operational model and the jurisdiction's transposition of DAC8, but the general expectation is that brokerage activities involving crypto-assets will be captured.

Reportable Transactions for Brokers

Brokers should be prepared to report on several categories of transactions:

Exchange Transactions

When a broker executes a trade — whether crypto-to-fiat, crypto-to-crypto, or fiat-to-crypto — the transaction details should typically be reported. This includes the gross proceeds from disposals, the fair market value of acquisitions, and the number of units transacted for each crypto-asset type.

OTC Transactions

OTC transactions present specific reporting considerations. These trades are often large, negotiated privately, and may involve bespoke pricing. Brokers handling OTC trades should:

• Record the fair market value at the time of the transaction, even if the negotiated price differs from prevailing market rates.
• Maintain documentation supporting the valuation methodology used.
• Report OTC trades with the same level of detail as exchange-based transactions.

Transfer Facilitation

When a broker facilitates the transfer of crypto-assets between parties or to external wallets, these movements may also be reportable. The aggregate value of transfers should typically be tracked on a per-user, per-crypto-asset basis.

High-Value Transaction Considerations

Crypto brokers, particularly those with OTC desks, frequently handle high-value transactions. These transactions may attract additional scrutiny and should be reported with particular care:

• Accurate valuation: For large trades, small discrepancies in fair market value calculations can result in materially different reported figures. Brokers should use reliable, documented pricing sources.
• Counterparty identification: In OTC dealings, the counterparty may be another institution, a fund, or a high-net-worth individual. DAC8 due diligence must be completed regardless of the counterparty type.
• Settlement timing: Some OTC trades settle over multiple days. Brokers should establish clear policies on when a transaction is considered complete for reporting purposes.

Due Diligence Challenges for Brokers

Brokers may face specific due diligence challenges related to their client base:

Institutional Clients

Many crypto brokers serve institutional clients such as hedge funds, family offices, and corporate treasuries. For entity clients, DAC8 due diligence typically requires identifying the entity itself, its controlling persons, and determining the relevant tax jurisdictions. This can be complex when dealing with multi-layered corporate structures.

Cross-Border Clients

Brokers operating across borders may have clients in multiple jurisdictions. Collecting valid Tax Identification Numbers (TINs) from clients in different countries requires familiarity with each country's TIN format and issuance practices.

Existing Client Remediation

Brokers with established client relationships may need to remediate existing accounts to collect data points required by DAC8 that were not previously gathered. This remediation should ideally begin well before the reporting deadline.

Distinguishing Reporting Responsibilities

In some brokerage models, multiple parties may be involved in a single transaction chain. For example, a broker may route an order to an exchange, which then executes the trade. In such cases, it is important to determine which entity bears the primary reporting obligation to avoid both gaps and duplicative reporting.

Brokers should review their agreements with partner exchanges and liquidity providers to clarify reporting responsibilities. Where both parties may have reporting obligations, coordination may be necessary to ensure consistency.

Practical Steps for Broker Compliance

1. Document all transaction types and classify them according to DAC8 categories.
2. Establish robust valuation procedures for OTC and negotiated transactions.
3. Review client onboarding workflows to ensure DAC8-compliant data collection.
4. Coordinate with execution venues to clarify reporting responsibilities.
5. Implement record-keeping systems that retain transaction data for the required period.
6. Seek legal guidance on the broker's specific classification under DAC8 and applicable Member State law.

Conclusion

Crypto brokers should anticipate that their intermediary role places them within DAC8's reporting requirements. The combination of high-value transactions, institutional clients, and complex execution chains means that brokers may face distinctive compliance challenges. Early preparation and clear internal policies should help brokers meet their obligations effectively.

This article provides general information and should not be treated as legal or tax advice. Brokers should consult qualified professionals for guidance specific to their operations.