Blog
Global Crypto Regulation Trend Intensifies on Both Sides of Pond
The push for improved regulations in the crypto and blockchain space has been growing for years now, with the occasional nudge from public failures such as a certain exchange’s scandal at the end of last year. February 2023 is seeing this regulatory trend continue as both sides of the pond tighten up on their crypto legislation: the US SEC released a ‘Statement on Proposed Rules Regarding Investment Adviser Custody’ whilst the UK government announced that it ‘Sets out plans to regulate crypto and protect consumers’. There’s little doubt that the FTX debacle has spurred both these on given some of the wording used in both documents and their focus.
Continuing on its path to making the UK a hub for technology and innovation, alongside the Prime Minister’s favorable stance on crypto, the UK government has set out to strengthen cryptoasset regulation once again, following a consultation which finishes at the end of April. Mentioning recent failures, and calling out crypto trading platforms, the announcement pushes the stance that the UK will be a safe jurisdiction where crypto can ‘flourish’ by reducing the risks that are still evident in the system, notably in this version by bringing exchange activities, custody activities and lending activities under the financial services’ regulatory purview.
In a similar manner, the recent statement from the SEC puts forward its proposed rules on investment advisor custody - designed to prevent the misuse, loss or abuse of customers' assets by advisers or custodians. There are four aspects to this proposal:
- All of an investor's assets (not just funds and securities) would be required to be segregated and to be stored with a qualified custodian to protect against the risk of the adviser/custodian going bankrupt or insolvent.
- Advisers and custodians have written agreements to guarantee protections, including public accountant oversight and the provision of account statements and records.
- Improveme the standards required of any business working with such companies in a custodial manner to have the same bankruptcy protection measures as the advisor or custodian.
- Confirm that custody safeguards apply to those who carry out discretionary trading.
Additionally, the proposal specifically calls out that crypto assets are likely covered by the current ruling and, more specifically, states that crypto trading and lending platforms may not be qualified custodians, even if they purport to custody users' crypto. Calling out recent bankruptcies (read 'FTX') the statement warns that users' funds may not be currently protected, and that these proposals would help expand customer protections in this much-needed case.
The influence of last year's FTX collapse is clear to see in both these statements and, given the level of public outcry when it happened and the extent of the failings that were discovered, the appropriate regulatory response has been clear from the start; having improved protections for crypto users is necessary and these measures strengthen the attractiveness and security of the system simultaneously. There is some difference in the approach here which is perhaps indicative of the two countries' attitude towards crypto. Though both are addressing the same overarching issue, the UK has begun a consultation period on improving the regulation whereas the US has simply proposed new rules. This highlights that the UK is seeking to create a crypto-friendly environment and will work with industry to create an ecosystem where blockchain technology is able to grow and adapt to what the crypto-space needs, whilst the US is intent on applying regulations that the regulators deem necessary. Although there are merits to both, and both will contribute to the much-needed strengthening of crypto regulations - particularly in the area of exchanges and custodians - it remains to be seen which will enjoy greater benefits of blockchain and crypto in the long run.
Regardless of which jurisdiction’s approach you think best, Blockpass is poised to ensure that businesses and users alike can respond to new and upcoming developments without any hassle or additional resources. Just recently Blockpass unveiled the groundbreaking Unhosted Wallet KYC solution, enabling compliance from the get-go. Blockpass will continue to prepare those in the crypto space to best adhere to requirements as and when they come, and will do so with its typical speed, expertise and cost effectiveness.
The Blockpass platform is fully automated and hosted in the cloud, with no integration or setup fee. Businesses can sign up to the KYC Connect console in a matter of minutes, test out the service, and start conducting identity documents verification, KYC and AML checks. Take a look at Blockpass' groundbreaking crypto compliance solutions:
KYC CONNECT®
- Built-for-Crypto, centralized off-chain KYC platform
- Bank-grade KYC/AML
- No integration necessary, no setup cost
- Self-service and managed SaaS plans
ON-CHAIN KYC®
- On-chain, zero-knowledge verification KYC platform
- Customers complete KYCin an anonymous, data-free way
- Verification results delivered by API KYC / ID data oracle across multiple blockchains
UNHOSTED WALLET KYC™
- Only KYC solution for unhosted (or non-custodial) wallets in the market
- Adheres to the Crypto Travel Rule laws being adopted, reduces regulatory risk of transactions
- Verifies users own/control their crypto addresses
By Matthew Warner