Love thy regulator!

Regulation is a bit of a swear word for some crypto fans, who are often attracted to cryptos’ decentralised nature which puts it safely out of reach of government manipulation.  With the ever-growing disparity between rich and poor, plus the major economies printing money with reckless abandon, which will inevitably lead to inflation, they have a point.  The most hardcore supporters will go one step further, seeing crypto as the currency of the free, which will enable a fairer and more democratic system for distributing wealth.  With 1.7bn people worldwide estimated to be without a bank account, having a faster quicker and cheaper way of storing and conveying value could be life changing.    

Unfortunately, this glosses over one key issue: how to keep the philosophy of democracy and liberty inherent to crypto, whilst preventing those who seek to use it for nefarious purposes.  Indeed, much has been made of the dark web choosing crypto as currency for a litany of heinous crimes including drugs, weapons, people smuggling and modern slavery.  I am somewhat perplexed when this is presented as an argument against the entire crypto industry; cash has been the currency for crime for a few millennia.  The root and branch fix for this is to hold crypto businesses to the same standards as banks; anything less undermines the credibility of the idea and industry that is digital currency.  Even worse, it will prevent the institutional players participating whose adoption is key for fuelling healthy growth in blue chip crypto prices. 

Let us be clear: money laundering is no small problem. The United Nations Office on Drugs and Crime claims that between 2 and 5% of global GDP is laundered each year. Financially, that’s between $2.84tr and $7tr, and of course the human cost cannot be quantified.  It cannot be left unsaid that banks are not part of the problem.  Indeed, bank anti-money laundering (AML) fine values in 2020 have already outstripped those of 2019.  This year has seen large fines issued to Commerzbank (£37.5m), SEB, ($107 million), Signet Bank and Westpac. 

Numerous crypto exchanges have had AML issues, the most recent example being BitMEX, which was hit with criminal and civil money laundering charges.  Exchanges in the UK, and EU are obliged to meet the robust standards required by 5th anti money laundering directive.  My personal opinion is that AML rules exist to protect consumers, businesses, and society at large.  Tellingly, when these are introduced, a number of crypto exchanges up sticks and left; including Deribit, Kyberswap and BottlePay.  

In the UK, the regulator’s relationship with the crypto industry is nuanced.  Crypto businesses are required to meet the FCA’s AML requirements, and have been asked to make themselves known to the FCA by January 2021.  Whilst the FCA does not regulate crypto per se, there are numerous financial products that should a crypto business develop, for example securities, do fall under the FCA’s jurisdiction.  The regulator has seen numerous new financial products newly fall under its remit, a recent example being peer to peer lending.  As crypto becomes more prevalent, it can only be good for the industry to have a governing body, indeed some would argue we are long overdue a clear out.   Indeed, in the countries where the regulatory landscape is more stable, governments have been quicker to create frameworks that foster innovation.  In Singapore, for example, the Monetary Authority was early to the party in drawing up a guide to digital token offerings in early 2019.    This then gave businesses HQ’d in Singapore a much clearer path in developing processes and financial products of a decentralized nature.  I cannot help but think early clarity is better than having to “muck out” the dirty stables of an industry later.  Therefore, I cannot help but feel that as the crypto industry matures it should be embracing regulation – enthusiastically! 

Adventures of a unicorn is a business blog documenting the daily life of tech startup in hypergrowth.  Dacxi is a unique crypto business in the crowd lending space.  

DISCLAIMER:

All views expressed in this blog are my own and do not represent the opinions of any entity with which I have been, am now or will be affiliated.