Blockchain and low-cost trading apps have had their share of ups and downs during the global pandemic. Additionally, over the past few months, we have seen financial regulators tighten their grip on these companies, both mobile stock trading apps and Crypto exchanges.
In June, the US Financial Industry Regulatory Authority issued its largest financial penalty ($70 million) against retail app Robinhood; the fine came even as they continue to come under scrutiny from the SEC over its business practices.
As Robinhood seeks to get rid of fines and pursue plans to list on Nasdaq under the ticker “HOOD”, Binance, the world’s largest crypto exchange, has found that the UK’s Financial Conduct Authority (FCA) Uni and the Ontario Securities Commission (OSC) were banning their services. because they did not comply with local regulations.
These bans had mixed results; for UK users, the ban was for a subsidiary not actively offering services in the UK. However, some banks, including Barclays & Santander, took the FCA’s warning seriously and stopped all GBP payments to the Crypto exchange. For Ontario users, Binance has decided to close its store entirely and advised locals to close all active positions by December 31, 2021.
In the United States, the new chairman of the United States Securities and Exchange Commission (SEC), Gary Gensler, has called on Congress to give the agency more authority to control trading, lending and trading platforms. cryptocurrency, a “wild west” that he said was riddled with fraud and investor risk.
With a low barrier to entry, many young investors have flocked to these services.
While the mainstream media has latched onto FUD (Fear, Uncertainty, and Doubt), increasing their readership and actively raising awareness of these services – I guess no PR is bad PR; if people believe there is money to be made…
So, is it really the Wild West out there?
Binance processed $5.4 billion in “spot” crypto transactions this year, according to crypto and blockchain research group TheBlockCrypto. So, as the most important player, how do they ensure that they comply with regulations?
According to a recent article from the FT & Binance official Twitter feed, Binance said it is quickly hiring more compliance staff and using advanced tools to block any potential illicit activity from its systems. They said: “We take our legal obligations very seriously,” they continued, “we have worked hard to put in place a robust compliance program.”
Binance is also one of the first to deploy AML (Anti Money Laundering) technology to help identify suspicious activity. In their case, CyberTrace, a software platform that interprets attribution data from active intelligence gathering, public and private intelligence sources, and open source intelligence (OSINT), reporting all data to compliance teams .
Companies also cooperate with law enforcement authorities when necessary, for example, the UK South East Regional Organized Crime Unit recently praised Binance for its efforts to help them fight bad actors in cyberspace regarding the supply of Class A drugs through the Dark Web.
The UK FCA is also investigating issues with crypto companies.
A Freedom of Information request to the FCA showed that 51 new investigations have been opened into unauthorized cryptocurrency businesses since September 2019. It is unclear whether this number will increase year on year or will decline, as better understanding and re-regulation of this socio-economic experiment helps protect investors. Time will tell us.
Even the bad guys in the industry recognize the need and benefits of strict regulation.
In a recent interview, Jordan Belford (infamous wolf of Wall Street) he called for “massive” regulation of Crypto and that only with this could we see full mainstream adoption.
The regulated future of online platforms
As global online equity and crypto markets evolve and begin to mature, more regulations will emerge as governments catch up with the next generation of financial services.
New regulations will seek to reduce market risk; however, the challenge remains if financial services become more decentralized; Which rules and regulations do you follow?
For companies working in more exotic asset classes, it is rapidly becoming increasingly critical to ensure that all communication channels used by traders are captured in real time. Most importantly, related data should be secure, accessible and searchable and ideally not stored in siled databases.
As sheriffs of their respective financial jurisdictions, regulators aim to maintain the integrity of financial markets. The authoritarian actions observed in recent weeks show that they are ready to firmly take control of their plains.
Key points to remember
Regulatory – Understand the risks and stay informed of changing rules.
Reaction – Make sure you can adhere to governance controls, cultural habits, and have the tools to stay ahead of bad players in real time. Investigations are often complex, so being able to report on communications is very useful.
Protection– Some online financial services are not registered with the UK Financial Conduct Authority. Always use a company registered or temporarily registered with the FCA or equivalent body.
Visibility – If you are responsible for trading data, make sure you can access all your data from a single pane and be prepared to rebuild it if necessary.
Disclaimer – This content is provided for informational purposes only and you should not construe this information or the like as legal, tax, investment, financial or other advice. Values correct as of August 2021.