Isn't It Time Banks And Crypto-Exchanges Made Friends?
August 31 2018 - 5:30AM
ADVFN Crypto NewsWire
By 2022, the UK will be a global hub for blockchain technologies
and the crypto economy. That is the claim of a new report from the
Big Innovation Centre, DAG Global and Deep Knowledge Analytics,
released last month. It’s good news, but why the four-year wait?
Why is the UK, the global financial heavyweight, with a liberal
market economy, smart regulatory environment and excitement for
innovation, not a leader now?
There is a vital relationship - a friendship - which is missing
from the equation and stymieing growth in the UK: that between
banks and crypto-exchanges and crypto-businesses. When I speak to
those in the blockchain industry, financial institutions and
regulators, the conversation always turns to this topic. Without
cooperation between exchanges (the platforms enabling
cryptocurrency-fiat transactions) and banks (the institutions that
have transacted, and dealt with the transactions of others, for
centuries) crypto and blockchain technologies cannot become
mainstream. Every transformation we know cryptocurrencies and
blockchain can bring - from vast reduction in transaction costs to
serving the underbanked - cannot come quickly to fruition without
mass adoption from banks and financial institution.
It may not be sexy, but the way to bridge these two groups lies
in compliance.
First, traditional financial services firms should acknowledge
that exchanges and other cryptocurrency companies are increasingly
taking a proactive approach to self-regulation in addition to
compliance with identified regulations such as anti-money
laundering. Earlier this year, for example, seven UK-based firms
launched CryptoUK to promote best practice. Members sign up to a
code of conduct which covers due diligence, customer protection in
the event of insolvency, and pricing transparency. In the crypto
industry, players know that taking a proactive regulatory stance in
areas such as anti-money laundering (AML), anti-fraud and security
will likely avoid any crackdowns in the future.
And banks should be aware that these companies, in addition to
establishing a regulatory consensus within their own market, are
already reaping the rewards of utilising blockchain technology.
Thanks to blockchain, the technology that underpins
cryptocurrencies, they have faster, more secure ways to store and
move value which are cheaper to run. Cooperating to understand,
rather than ignoring, should, therefore, be the way forward.
Second, building harmonised compliance processes for banks and
crypto-exchanges will engender cooperation, and innovation. Tools
that give visibility to banks on transactions coming in and out of
exchanges, and visibility to exchanges of transactions that banks
have internally on their books, are key. So too is the ability for
both parties to see any high-risk activity and manage that in a
live environment.
The conversation needs to be based on facts, with both sides
understanding the parameters they need in which to operate. One of
the argument I hear from banks, for instance, is that exchanges
pose too great a risk, or that relationships with them could not be
managed properly. This is not true. Where, for example, exchanges
are based outside a regulatory jurisdiction, companies like mine
can identify them, assess what AML processes they are applying, and
mark them in our systems to provide information to the market.
Similarly we can act if we see in our system an exchange’s profile
becoming too high.
With tools already available to manage risk, if banks allowed
customers to open crypto accounts (via exchanges), they would
enhance their own KYC capabilities, piggybacking on the
transparency of distributed ledger technology. A final idea is to
lower the KYC requirements on crypto transactions of less than
$1,000. This would encourage individuals and companies to continue
transacting via one account, rather than opening multiple, or even
using “tumbler” services to mix good money with bad. We can, as a
side note, already eliminate smurfing (when one person opens a
number of accounts in order to stay undetected) by using graph
analysis to connect seemingly unrelated addresses.
Third, access to these intermediary systems could also be given
to regulators, doing away with swathes of auditing trails, and the
reactive manner in which they are currently obliged to respond.
Compliance intermediaries can provide the tools to promote
cooperation between banks and crypto-exchanges, and provide access
to regulators.
Progress is coming. In late July, the UK Cryptoassets Taskforce
organised a roundtable. Here, those of us in the industry were able
to speak with representatives from the Bank of England, Financial
Conduct Authority, HM Treasury, banks and universities. We
discussed the approach the UK should be taking towards bitcoin and
other cryptocurrencies, and blockchain. I for one was pleased with
the result: it looks like the UK is moving towards considering
crypto-assets as opportunity.
Which brings us to the fourth thing we need to see: political
and regulatory will. If policymakers, regulators - and banks - want
a blueprint for how things can be done, Japan provides one. Not
only are large financial institutions already issuing their own
coins; they are also investing in crypto-exchanges. Just last week,
the country saw the launch of the world’s first bank-owned
crypto-exchange, with applications being accepted for new
accounts.
If incumbent financial players, and those in the crypto and
blockchain space, want to be greater than the sum of their parts,
they need to cooperate. The right compliance systems will form the
basis of doing so successfully.
Souce:
Forbes
Bitcoin (COIN:BTCGBP)
Historical Stock Chart
From Jul 2024 to Aug 2024
Bitcoin (COIN:BTCGBP)
Historical Stock Chart
From Aug 2023 to Aug 2024