Since the advent of the first cryptocurrencies over a decade ago, the market for trading in virtual ‘coins’ or tokens remains buoyant. There are now thousands of different cryptocurrencies in circulation with a combined market value estimated to exceed £100bn. As the name implies, cryptocurrencies use cryptography to verify and secure transactions, which is done using decentralised ledger systems such as Blockchain.
By definition, the use of decentralised ledger systems removes the dependency on central banks and issuers. This introduces a certain amount of insulation against macroeconomic drivers such as political instability or governmental interference, while also introducing high levels of volatility and a host of additional risks. This, in turn has generated a great deal of speculative interest and spawned a thriving global crypto-trading environment.
Regulatory challenges of crypto trading
Unsurprisingly, the rapid advent of the technology driven cryptocurrency markets presents a number of challenges for both firms and regulators.
The inherent security benefits of a cryptographic currency can be exploited for nefarious means as identities can be obscured and trading can be borderless. Combined with other exploitable technologies such as the dark-web, lawmakers and regulators are understandably concerned about the risks cryptocurrencies present.
Media coverage of dramatic appreciations in value of some cryptocurrencies has lured less sophisticated investors into unregulated markets. This has also contributed to the explosion of cryptocurrency offerings, each with its own specific characteristics and features.
Regulators are somewhat on the back foot when it comes to the regulation of crypto trading. Issues such as jurisdictional oversight, trading venues, investor protection and financial crime have yet to be fully addressed. Despite, or possibly because of this, crypto trading activity continues to increase steadily. As regulatory authorities catch up they are placing an increasing burden on those active in cryptocurrency markets.
Staying ahead of the curve
Bovill works with a number of crypto trading and cryptocurrency related firms including market participants, trading venues and innovative finance firms. We help firms navigate the increasingly complex regulations, ensuring and enhancing their regulatory compliance and operational resilience. We also work with start-ups looking to obtain new authorisations, often to tap underserviced market sectors or to create new products or services entirely.
How Bovill can help
Our experienced team closely monitor the regulatory horizon and help our clients act swiftly and effectively to maintain the highest levels of regulatory compliance. This is particularly relevant for firms involved with cryptocurrencies where the associated regulatory regimes are evolving more rapidly than most.
Our cryptocurrency service offering also includes:
- Financial crime advice – we have specialist expertise in financial crime regulation with a specific focus on cryptocurrencies and crypto trading activities, which are inherently susceptible to money laundering and other financial crime
- Regulatory perimeter guidance – we help clients involved in crypto trading activities understand what regulatory permissions they require to support current or future strategic plans. We can also help apply for additional regulatory permissions required
- MTF application support – We help our clients through every stage of the authorisation process from drafting the application and supporting documentation such as the Regulatory Business Plan; through the application process, supporting with regulatory engagement and helping put policies and procedures in place; to post authorisation support such as compliance monitoring