Crypto Compliance for Prime Brokers: Navigating IRS and OECD Reporting Rules

Crypto Compliance for Prime Brokers: Navigating IRS and OECD Reporting Rules

As digital assets continue to gain traction in institutional finance, prime brokers are increasingly stepping into the crypto space—offering services such as custody, lending, and clearing for digital asset clients. However, this expansion brings with it a new layer of regulatory complexity. Two major developments are reshaping the compliance landscape: the IRS Digital Asset Regulations and the OECD’s Crypto-Asset Reporting Framework (CARF).

This article explores how these frameworks impact prime brokers and outlines best practices for navigating the evolving global crypto compliance environment.

The Rise of Digital Asset and Crypto Reporting Regulations

From unregulated to regulated, historically, crypto-assets operated outside the scope of traditional financial regulation. That is rapidly changing. Governments and tax regulators are moving to bring digital assets under regulatory oversight, aiming to close tax gaps and improve transparency. These developments mark a shift from voluntary disclosure in crypto space to mandatory standardized reporting obligations

The OECD’s Crypto-Asset Reporting Framework (CARF)

The Crypto-Asset Reporting Framework (CARF), developed by the OECD, is designed to combat tax evasion by introducing a global standard for the automatic exchange of information on crypto-asset transactions. This framework builds on the success of the Common Reporting Standard (CRS) and is part of a broader effort to modernize tax transparency in the digital age.

Key CARF Requirements Crypto-asset Service Providers, financial institutions, and intermediaries, including prime brokers must:

• Identify reportable users and determine their tax residency with the collection and validation of tax id numbers.
• Collect and report transaction data, including transfers, exchanges, and payments involving crypto-assets.
• Transmit information to local tax authorities, who will share it with other jurisdictions under automatic exchange agreements.

Although CARF is expected to be implemented in participating jurisdictions starting in 2027 or 2028,  prime brokers should begin preparing now as reportable data needs to be collected in 2026.

IRS Digital Asset Reporting Regulations

In parallel with CARF, the IRS has finalized regulations that expand the definition of “broker” to include digital asset platforms and intermediaries. This includes prime brokers that facilitate crypto transactions for clients. These rules are part of a broader effort to ensure that digital asset transaction are subject to the same tax reporting standards as traditional financial instruments.

Key IRS Requirements for Prime Brokers:

• Form 1099-DA: A new form for reporting digital asset transactions, including sales and exchanges.
• Cost basis reporting: Brokers must track and report cost basis and gain/loss information.
• Expanded definitions: The term “digital asset” now includes NFTs and stablecoins, broadening the scope of reportable activity.

These rules were set to take effect in phases starting in 2025, with full implementation expected by 2026. However, the IRS has recently issued transitional relief of a year for certain aspects of digital asset reporting. The phased requirements still ensure significant adjustments to reporting systems and processes need to take place.

Crypto Compliance Challenges for Prime Brokers

Prime brokers face several unique challenges in adapting to these new regulations based on the types of businesses and products they support.

• Complex Client Structures: Prime brokers often serve hedge funds and other entities with layered ownership structures. Identifying beneficial owners and determining tax residency under CARF will be particularly challenging.
• Data Collection and Integration: Collecting accurate data on digital asset transactions, and integrating it into existing compliance systems, requires significant investment in technology and process redesign. This is especially critical given the volume and speed of crypto transactions.
• Cross-Border Coordination: With both the IRS and OECD introducing overlapping but distinct reporting regimes, prime brokers must ensure consistency and accuracy across jurisdictions.

Best Practices for Crypto Compliance

To navigate this evolving landscape, prime brokers should begin by conducting a regulatory impact assessment to evaluate how CARF and IRS rules apply to your digital asset services. This includes reviewing presumption rules where documentation is missing, ensuring accurate transaction categorization, and collecting the right account documentation to determine applicable reporting regimes and exemptions. Getting this right is essential for accurate, timely, and compliant reporting.

• Enhance Due Diligence Procedures: Update onboarding and KYC processes to capture crypto-specific data, including wallet addresses and transaction histories.
• Invest in Technology: Leverage RegTech solutions to automate data collection, classification, and reporting for digital assets. Reducing manual effort and improving accuracy are the primary goals for system integrations.
• Collaborate Across Functions: Ensure compliance, operations, legal, and IT teams are aligned on crypto compliance strategy.
• Engage with Tax and Legal Advisors: Stay ahead of regulatory developments and ensure your compliance framework is audit-ready.

How can TAINA help?

The IRS Digital Asset Regulations and the OECD’s Crypto-Asset Reporting Framework (CARF) represent a major shift in global tax transparency and compliance. These developments will significantly impact how financial institutions, especially prime brokers, manage digital asset reporting. While the road to implementation may be complex, it also presents a valuable opportunity to modernize compliance processes and strengthen operational resilience in the evolving crypto landscape.

At TAINA, we are closely monitoring the evolving regulatory landscape and preparing for the expected initial CARF data collection in 2026 and reporting in year 2027. We believe that regulatory compliance should empower—not hinder—business growth or user experience.

Our award-winning, fully automated form validation platform helps financial institutions streamline onboarding and reporting for CRS and CARF. With TAINA, you can reduce operational costs, mitigate compliance risk, and improve customer experience—all while ensuring your year-end data is accurate, complete, and audit-ready.

We would love to talk to you more about how our award-winning FATCA and CRS Validation platform will help you deal with the CARF requirements. For more information get in touch or request a demo to see it in action.