There has been a lot of noise and several prominent announcements over the regulation of crypto and digital asset supporting firms in the last nine months. These include SEC Chair Gary Gensler’s recent comments that digital assets are “rife with fraud, scams, and abuse” and the SEC’s reactive battle with Coinbase. But Gensler also lectured on Blockchain and Crypto at MIT and believes the laws currently governing the market, which date back to the Great Depression, are sufficient to handle modern inventions like bitcoin. “There’s no need to rewrite the rules”.
Also, the OCC considers crypto-custodial services for crypto assets to be a legitimate business, subject to the same requirements as other custodial services at national banks and thrifts which they regulate.
In the UK, probably the most significant development has been requiring any crypto-asset exchange providers to adhere to the MLR Amendment (the UK’s Anti-Money Laundering and Terrorist Financing Regulations.)
These announcements and discussions can often lead to confusion and disruption in the markets and fear or annoyance as FinTechs build their businesses.
But this is really no different than the regulatory framework developments in the currency markets in the 1980s, the interest rate derivatives markets in the 1990s and the credit derivatives market 20 years ago.
Crypto is here to stay. The regulatory framework will come. And it will largely be an application of the same standards to which other assets adhere. It will enable the strongest and best organized to succeed, and it will require that each firm has certain standard banking and financial processes and controls in place. In all circumstances, you will require strong AML and KYC controls; Policies, Procedures, and Controls over your functions and business; First-Line Supervision; Risk Assessments; appropriate Risk Monitoring and Review of activities and an independent Audit function. Those regulatory requirements should not shock anyone, and the sooner firms assign the people and costs to put those in place, the more quickly they can advance their proposition, without confusion, regulatory interference or shock – and even ahead of absolute clarity being delivered.
At BPL we have done almost 30 projects (some of those with the support of our friends at Meji Partners for AML/KYC and Third-Party Risk), by using our deep banking experience and helping firms active in the digital asset space apply the kind of controls and processes required to satisfy regulators and adopt market standards.
Speak to us. We are here to help.