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A Fortnight in Fintech: Libra, Hong Kong, FCA and OneCoin

12 November 2019

 

Where finance meets technology, interesting things continue to happen.

As ever, cryptocurrency is a dominant theme – for America, Asia and Europe alike. We’re also seeing developments in financial regulation, including proposals that will affect crypto firms in the UK from 2020.

As well as taking in fintech news online, we also like to get out and discuss it in person. We have a roundtable discussion coming up on 14 November for brokers on cryptos and digital finance, which you can find out more about below.

Libra: swapping like for unlike?

Libra, Facebook’s digital currency project, is becoming increasingly well known – or should that be infamous? Finding a positive headline about it is not easy. In the past fortnight alone, headlines have included:

  • Facebook’s partners yet to commit money to Libra (BBC News)
  • Alarmed by Libra, EU to look into issuing public digital currency (Reuters)
  • FTC Commissioner Cites Libra In Support of Fed’s Real-Time Payment System (CoinDesk)

That FTC (Federal Trade Commission) Commissioner, Rohit Chopra, has provided a colourful collection of mixed metaphors:

“The vague and scant details on the tech platform’s proposed shadow global central bank have sounded international alarm bells … The laundry list of risks raised by the Libra project will take time to unpack and address.”

It seems that an initiative which Facebook would want us to see as innovative and inclusive is gaining critics and losing support – similar to Facebook itself.

The outcome of the ‘unpacking and addressing’ will surely prove pivotal to whether members of the Libra Association move forward with their $10m soft commitments.

Among the European responses to Libra, the Association of German Banks (BdB) has released a paper proposing a digital version of the Euro.

This is unsurprising as regulators put pressure on Libra, and in turn Libra forces central banks to act to mitigate the perceived threat.

While we are among those with limited enthusiasm for the Libra proposal, we are glad to see it force the hand of established institutions to look at the benefits of this technology.

Some headlines from the report we particularly agree with are:

  • ‘To create public trust in programmable digital money, compliance with the highest regulatory standards is essential.’
  • ‘The user of a digital euro – whether man or machine – must be clearly identifiable.’

The first we see as key to adoption; the second will allow incredibly useful real-time information on money flows for central bank policy setting.

Hong Kong and digital asset regulations

Hong Kong regulators have released some rules on asset managers investing in digital assets. The paper is not exclusive to cryptocurrencies, but covers any digital asset including security tokens.

As well as covering more standard issues such as allocation and best execution, there is a focus on custody. This is the biggest issue fund managers should consider when thinking about adding digital assets to a portfolio or fund.

One fund recently lost between $1m and $2m of digital assets when the CTO’s phone was compromised.

The custody rules state an appropriate third-party custodian is to be used, so funds must find a provider with the right ability and knowledge.

There will be a balance to be found between hot storage, which could be vulnerable to attack, and cold storage where although funds are safe, they are not immediately available for trading.

Proposed FCA regulations affecting crypto firms from January 2020

The Financial Conduct Authority (FCA), in its new role as the anti-money laundering and counter terrorist financing supervisor for cryptoasset businesses, has released its consultation paper Recovery of costs of supervising cryptoasset businesses under the proposed anti-money laundering regulations: fees proposals. Under these proposals, crypto businesses will need to be registered with the FCA by 10 January 2020.

While this is still at the consultation stage, if you’re involved with cryptocurrency then it’s important to understand how this is likely to affect you and where you can find help with the registration process.

In conjunction with The MPAC Group, a highly experienced team of corporate compliance and regulatory advisers, we have more information here.

BKL and The Broker Club: Cryptocurrencies and Digital Finance

Our financial services team is pleased to be hosting an event this week exclusively for brokers, in collaboration with The Broker Club and BCB Group.

We’re looking forward to leading the discussion on the future role of crypto and digital currencies. Areas for discussion include major players and myths in the sector, challenges and solutions for firms that get involved with crypto and any specific questions about the digital asset world.

Find out more on our event page.

The Missing Cryptoqueen

Last week saw the conclusion of the acclaimed BBC podcast The Missing Cryptoqueen. It tells the story of Dr Ruja Ignatova and her scam involving OneCoin, a fake cryptocurrency. As David Aaronovitch put it in The Times yesterday: ‘OneCoin is a cryptocurrency only in the sense that the Wizard of Oz is a wizard.’

But OneCoin was close enough to wizardry to cast a spell over a huge range of investors, big and small.

Podcasts like this are great for spreading awareness of cryptocurrency and fintech. We can expect more cryptoqueens and cryptokings: here’s hoping that they will use their powers responsibly and be held to account if they don’t. After all, cryptos will, like the podcast, be ‘available indefinitely’.

For more on how we can help fintech businesses, take a look at our fintech page or contact us using our enquiry form.

You can also read our previous fintech news roundup here.