Crypto asset market participants said regulators are looking more positively at the new sector but more clarity is needed for mainstream adoption.
There are signs of progress in regulation such as President Biden’s Executive Order on March 9 on the responsible development of digital assets and the passage of MiCA, the European Union’s Markets in Crypto-Asset regulation. The UK Financial Conduct Authority is due to soon publish guidelines on stablecoins, although the UK regulator is still declining to register many crypto firms because of anti-money laundering concerns.
Kathy Kraninger, vice president of regulatory affairs at Solidus Labs, which provides automated market surveillance and risk monitoring for digital assets, said there has been a massive increase in regulators moving in a positive direction. Kraninger spoke on a panel at the CryptoCompare Digital Asset Summit in London on March 30.
“We have turned the tide from the sector being seen as the Wild West and we hope that positive engagement will continue,” she added.
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Kinsey Cronin, blockchain risk and intelligence at TRM Labs, said on the panel that regulatory clarity is needed on what compliance means. “We do not need granular instructions but tools to enable compliance,” she added.
Kraninge highlighted that in traditional finance compliance has revolved around verifying identity, but in crypto a behavioural approach may be more useful as activity history can be analysed on blockchains.
“It will be possible to have risk management and compliance that is data-driven and smart,” Kraninge said.
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In February 2022 Solidus Labs launched the Crypto Market Integrity Coalition (CMIC) with 17 crypto exchanges, trading firms and industry associations, to make a pledge of commitment to safer markets and working with regulators. The market integrity pledge identifies forms of market manipulation and provides transparency into the kinds of abusive trading behaviors the signatories are striving to root out of markets.
Paul Grewal, chief legal officer of Coinbase, said in a statement: “Along with our advanced market protections, we have operated a robust market surveillance program that utilizes state of the art technology for the past several years. Working together, we can resolve to build a safer crypto economy that focuses on the integrity of our interconnected markets."
CMIC will also promote training, sharing insights and research, and sharing data and surveillance frameworks.
Julian Sawyer, chief executive at crypto exchange Bitstamp, agreed at the summit that President Biden’s Executive Order and MiCA will help crypto assets go mainstream. He added: “We need a level playing field and regulatory clarity.”
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Shobhit Maini, co-head of digital assets at Citi Global Markets, said on a panel at the summit that regulatory clarity is needed before the bank launches products in the sector although it does facilitate trades in exchange-listed products such as bitcoin futures on CME Group or crypto asset ETFs which are listed on venues such as Deutsche Börse.
In addition, Citi provides banking services as crypto firms grow around the world and advisory services, such as on Coinbase’s direct listing, and research.
For example, CITI GPS said in a research report, Metaverse and Money: Decrypting the Future, that the total addressable market for the Metaverse could be between $8 trillion and $13 trillion by 2030, with approximately five billion users.
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The definition of money is also likely to change in the Metaverse.
“Different forms of cryptocurrency are expected to dominate, but given the multi-chain trend in the crypto ecosystem, cryptocurrency will likely coexist with fiat currencies, central bank digital currencies (CBDCs), and stablecoins,” added the report.
In addition, there will be greater scrutiny from global regulators, policymakers, and governments.
“Issues such as anti-money laundering rules for exchanges and wallets, the use of decentralized finance (DeFi), crypto assets, and property rights will all have to be addressed,” added Citi GPS.
FCA crypto company deadline
The UK Financial Conduct Authority has said at the time that a significantly high number of crypto businesses are not meeting the required standards under the anti-money laundering regulations.
The FCA had allowed a Temporary Registrations Regime (TRR) to allow existing crypto asset firms that applied for registration before 16 December 2020 to continue trading. The regime was due to end on 9 July 2021 but was extended to 31 March 2022.
Ian Taylor, executive director at CryptoUK, the UK's independent crypto industry association, said in a statement that the FCA has given 12 crypto firms still awaiting approval a period of time to either withdraw or appeal the FCA decision that they had not met the required standards.
“However, an unprecedented 80% of the rest, that is 160 out of 200 British crypto companies have been asked to withdraw,” he added. “The impact for those companies is that they will have to operate offshore.”
https://twitter.com/CryptoUKAssoc/status/1509557088992776193
As a result there will be no consumer oversight if a UK citizen buys products from an online business domiciled outside the UK, such as in Malta or Cyprus. Taylor also highlighted that this will also result in thousands of job losses at all of those 160 British crypto companies.
In addition, if companies move to less advanced regulatory environments, they will not be required to conduct globally accepted standards with regard to anti-money laundering, know your customer and transaction monitoring.
“It is unusual for the FCA to offer little support to companies trying to comply with their requirements,” said Taylor. “We need more transparency and guidance on best practice from the FCA so that companies that are already 90% compliant can be supported in reaching 100%.”