Operational review checklist for exchanges

Executive Summary

Problem: Sudden regulatory actions and dependence on local financial partners create systemic risks for crypto exchanges, potentially leading to operational paralysis and frozen client assets. Without a proactive resilience framework, even market leaders are vulnerable.

Solution: This document presents an executable framework for building operational resilience based on data and stress tests. It includes an Early Warning Indicator (EWI) system with calibratable thresholds, evidence-based KPIs, detailed response plans (runbooks), and legally vetted procedures for protecting client assets in crisis situations, compliant with ISO 22301 and NIST standards.

Key Success Criteria for the Framework:

1. Financial Stability: Maintaining Proof-of-Reserves (PoR) at 100–110% with a monthly independent audit.
2. Operational Readiness: Recovery of critical systems (fiat gateways, hot wallets) with RTO < 4 hours, RPO < 15 minutes.
3. Proactive Risk Detection: Reducing unforeseen incidents by 50% through the EWI system.
4. Legal Security: 100% of key jurisdictions covered by legal opinions on mandatory asset conversion procedures.

Implementation Roadmap:

• 1 month: Form a Crisis Committee (RACI matrix). Audit and diversify banking partners. Initiate legal analysis of procedures across key jurisdictions.
• 3 months: Launch the EWI monitoring system with thresholds calibrated on historical data. Conduct the first independent PoR audit.
• 6 months: Conduct the first full-scale stress test based on a combined scenario and practice technical runbook procedures for switching to backup systems.

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1. Introduction: Systemic Risk Lessons and Framework Objective

In early 2024, Coinbase suspended operations with the Argentine Peso (ARS), citing an "operational review." This move cut users off from a key gateway for converting cryptocurrency into national currency. This case is not a local issue but a marker of systemic risk, demonstrating how dependence on local financial partners and the regulatory environment can paralyze operations.

Problem Hypothesis: Most crypto exchanges lack a formalized and tested response plan for the sudden termination of key fiat partners, jeopardizing client assets and business continuity.

The goal of this framework is to provide Chief Operating Officers (COO), Compliance Officers (CCO), and legal counsel with an actionable plan to ensure business continuity. It moves the concept of resilience from declarative to operational through specific metrics, procedures, and legal mechanisms, drawing on best practices (ISO 22301, NIST CSF).

2. Jurisdictional Risks and Legal Adaptation

The presented framework is a template and requires mandatory adaptation to each specific jurisdiction with the involvement of local counsel.

Key risks requiring legal study:

• Currency Control: Laws restricting or prohibiting the transfer of funds abroad or their conversion.
• Consumer Protection: Restrictions on unilateral changes to terms of service, including forced asset conversion.
• Licensing Requirements: Specific conditions for operating with digital assets.
• Data Storage: Requirements for server localization and personal data storage.

Mandatory Actions:

1. Legal Analysis: Conduct a legal review for each key jurisdiction regarding the admissibility of forced conversion. Identify scenarios where it is prohibited.
2. Alternative Measures: For jurisdictions where conversion is prohibited, develop alternative protection mechanisms (e.g., segregated accounts, escrow mechanisms, court-approved procedures).
3. User Agreement: Include a section in the User Agreement on actions in force majeure circumstances, giving the exchange the right to convert fiat balances into a predefined stablecoin to protect client assets from being frozen (see Appendix D). The wording must comply with local laws.

3. Proactive Monitoring: Early Warning Indicators (EWI)

The EWI system must aggregate real-time data from various sources via ETL pipelines into a centralized repository (e.g., SIEM) for analysis and alert generation.

3.1. Key Indicators and Threshold Calibration

Trigger thresholds should not be static. They must be calibrated based on historical data (baseline), accounting for seasonality and market volatility.

Calibration Methodology:

1. Data Collection: Gather historical metric data for the last 12–24 months.
2. Baseline Definition: Calculate a moving average (e.g., 30 days) and standard deviation.
3. Threshold Setting: Thresholds are set as a deviation from the baseline (e.g., 2–3 standard deviations).
4. Revision and Back-testing: Regularly (quarterly) review thresholds and test them against historical data to minimize false positives. The false positive rate is tracked as a separate KPI (target < 5%).

Indicator	Metric and Threshold (Example)	Data Source	Frequency	Responsible
Fiat Gateway Pressure	Deposit volume drop >20% (WoW) with withdrawal volume growth >15% (WoW).	Banking APIs, SWIFT	Daily	Operations Dept
Processing Delays	Average fiat withdrawal processing time increases by >15% over SLA within 24 hours.	Internal OPS system	Hourly	Operations Dept
Counterparty Behavior	Increased clearing time by the partner bank. Chargeback requests grow >5%.	Financial system, Partner API	Daily	Finance Dept
Regulatory Landscape	Publication of draft laws, Central Bank statements affecting crypto operations.	Media monitoring systems	Continuous	Legal Dept

When a trigger fires, the system automatically creates an incident (e.g., in PagerDuty/Jira) and notifies responsible parties via secure channels (Slack, Signal).

4. Comprehensive Operational Resilience Checklist

Area	KPI / SLA	Rationale and Verification Methodology	Documentation Requirements	Responsible
Fiat Partnerships	≥ 3 active banking gateways in each key jurisdiction. Transaction processing SLA: < 24 hours.	Diversification reduces single point of failure risk. Verification: Quarterly contract audit and test transactions to verify SLA (>99% success).	Contracts with clear SLAs and penalties; technical runbook procedures for switching to a backup gateway.	Head of Operations
Reserves	Proof-of-Reserves (PoR) 100–110%.	Methodology: 100% for full liability coverage. 5–10% buffer to compensate for exchange rate volatility, banking delays, and illiquid assets. Verification: Monthly audit (Merkle Tree + independent auditor's report) considering all asset types and liquidity.	Public reserves report with verification mechanism. 2-year report archive.	CFO
Compliance (AML/KYC)	Transaction risk score < 70 (on a scale of 0 to 100, where >70 is high risk, per Chainalysis/Elliptic methodology).	Score <70 is the industry standard for filtering high-risk addresses (sanctions, darknet). Verification: Quarterly audit to balance efficiency (FP < 5%, FN < 1%) and operational load.	AML risk management policy, AML system reports, external audit opinions.	CCO
Technical Resilience	RTO < 4 hours, RPO < 15 minutes for critical systems (trading engine, hot wallets, fiat gateways). ≥ 95% of client assets in cold storage (multi-sig).	RTO/RPO ensure minimal downtime and data loss. Verification: Quarterly Disaster Recovery (DR) drills. Annual external pentests.	Key management policy, pentest reports, and DR drill logs. Log archiving SLA — 5 years.	CTO/CSO

5. Financial Stability and Stress Testing

• Frequency: At least once every six months.
• Responsible Parties: Crisis Committee (CFO, COO, CSO, CCO).
• Outcome: Report identifying vulnerabilities and a remediation plan (S.M.A.R.T. tasks).

5.1. Simulation Scenarios

1. Scenario 1 (Bank Run): Withdrawal requests from 30% of users. Goal: Verify liquidity sufficiency.
2. Scenario 2 (Partner Failure): Sudden disconnection of the primary banking gateway. Goal: Verify speed of switching to the backup channel.
3. Scenario 3 (Combined Shock): Bank run + DDoS attack + negative regulatory background. Goal: Verify Crisis Committee coordination.
4. Scenario 4 (Prolonged Freeze): Assets frozen at a partner for 3+ months. Goal: Practice the mandatory conversion procedure.

5.2. Modeling Methodology

Stochastic modeling methods (Monte Carlo) are used, accounting for user behavioral shocks and correlations between market events. Input parameters (e.g., percentage of users initiating withdrawal) should be based on historical data analysis during market panics.

6. Contingency Plan

6.1. Crisis Committee and Responsibility Matrix (RACI)

• Composition: CEO, COO, CCO, Head of Legal, CSO, CFO, Head of PR.
• RACI Matrix (Example):

Action	CEO	COO	Legal	PR
Decision to suspend operations	A (Accountable)	R (Responsible)	C (Consulted)	I (Informed)
Approval of public communications	A	I (Informed)	R (Responsible)	R (Responsible)
Decision on asset conversion	A (Accountable)	C (Consulted)	R (Responsible)	I (Informed)
Communication with the regulator	A (Accountable)	I (Informed)	R (Responsible)	I (Informed)

(R — Responsible, A — Accountable, C — Consulted, I — Informed)

6.2. Phased Response Plan

Timelines are indicative and must be adapted based on jurisdictional notification requirements and operational risks.

• T+0: Incident detected. Automatic convening of the Crisis Committee.
• T+1 (1 hour): Decision on further actions.
• T+4 (4 hours): Publication of the first announcement for users (Appendix B). Rationale: Balance between the need for speed and time to gather accurate information.
• T+24 (24 hours): Suspension of new fiat deposits. Rationale: Limiting the inflow of new funds into the risk zone.
• T+14 (14 days): Publication of the final conversion warning. This period may be extended based on local law requirements.
• T+30 (30 days): Final date for fiat withdrawals. After this, remaining balances are converted. Provides users reasonable time to act.

6.3. Stablecoin Conversion Procedure

1. Stablecoin Selection: Use a regulatorily transparent stablecoin with verified reserves and high liquidity (e.g., USDC, PYUSD).
2. Notification: Users are notified at least 14–30 days in advance via all available channels (email, push, SMS). Provide procedures for users without current contact info.
3. Rate Fixation: The conversion rate is fixed as a Time-Weighted Average Price (TWAP) for 1 hour prior to conversion from 3–5 independent sources (e.g., Kraken, Coinbase, Binance).
4. Execution: Conversion is conducted through a vetted OTC counterparty.
5. Audit: Conversion results (volumes, rates, transactions) are documented and available for audit.

7. Training and Readiness Testing Plan

• Tabletop Exercises: Quarterly for the Crisis Committee.
• Full-scale Simulations: Annually with all teams participating.
• Exercise KPIs:
  • Data gathering time for decision-making.
  • Decision-making time by the Crisis Committee.
  • % of successful failovers to backup systems.
  • Adherence of actions to runbook procedures.

8. Post-mortem and Continuous Improvement

After every incident or exercise, a post-mortem analysis is conducted.

• Report Template: Incident description, timeline, root cause analysis (RCA), impact assessment, lessons learned, action plan to address deficiencies.
• Improvement KPIs: Deadlines for closing findings (critical — 7 days, important — 30 days).

9. Conclusion

In an environment of growing regulatory pressure, proactive risk management, financial transparency, and tested action plans are basic requirements for operational resilience. The presented framework allows for a transition from reacting to crises to preventing them, ensuring the protection of client assets and long-term business stability.

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Appendices

Appendix A: Regulator Notification Template

(Unchanged)

Appendix B: Press Release Template

(Unchanged)

Appendix C: User FAQ Template (Expanded)

• Why are operations with [Currency Name] suspended?
  • Due to new requirements from our local banking partners, we are forced to temporarily suspend deposits in [Currency Name]. We are working on finding alternative solutions.
• Are my funds safe? How do you prove it?
  • Yes. All your crypto assets are completely safe. Fiat funds are available for withdrawal until [Date, T+30]. We publish monthly Proof-of-Reserves reports, verified by independent auditors. You can find the latest report here: [Link].
• What happens if I do not withdraw fiat funds by [Date]?
  • According to section [Section Number] of our User Agreement, to protect your assets from being frozen, remaining balances will be automatically converted to [Stablecoin Name] at the market rate on [Date and Time]. You will be able to withdraw this stablecoin at any time.
• Will there be compensation for potential conversion losses?
  • Conversion will be conducted at a volume-weighted average market rate from several major exchanges to minimize losses. This measure is a last resort aimed at protecting your funds from a total freeze, which is a more severe risk.
• When will the service be restored?
  • We are actively working on onboarding new partners. It is difficult to provide exact dates, but we will inform you of progress weekly. Follow our official announcements.

Appendix D: Legal and Contractual Requirements

1. Sample wording for the User Agreement (Force Majeure section):

"In the event of force majeure circumstances, including but not limited to: changes in legislation, regulatory actions, termination of service by key financial partners that make it impossible to further store or process User fiat balances in a specific currency, the Company reserves the right, upon notifying the User at least 14 (fourteen) calendar days in advance (or within another period established by applicable law), to convert the remaining User fiat balances into an equivalent amount in the stablecoin [Stablecoin Name, e.g., Circle USD (USDC)] at the volume-weighted average market rate at the time of conversion. This measure is applied to protect User assets from the risk of total or partial loss as a result of freezing."

2. Key requirements for third-party contracts (banks, payment providers):

• SLA: Clearly defined timeframes for processing transactions and resolving incidents.
• Notification Obligation: Obligation to notify the exchange of planned or emergency service termination within T+X hours/days.
• Penalties: Financial fines for SLA non-compliance.
• Right to Audit: The exchange's right to access logs and results of the partner's security audit.

Appendix E: Technical Runbook Structure

Each runbook must contain the following sections:

1. Purpose: e.g., "Emergency failover to backup fiat gateway."
2. Activation Triggers: Specific events (e.g., primary gateway API failure > 5 minutes).
3. Roles and Contacts: List of responsible engineers and managers with escalation contacts.
4. Step-by-Step Instructions: Detailed steps with CLI commands, scripts, and links to control panels.
5. Verification Procedures: How to ensure the failover was successful.
6. Rollback Procedure: Instructions for returning to the initial state.
7. Communication Template: Pre-written messages for informing internal teams of progress.