Last month, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency drafted a Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps. In its introduction, the paper acknowledged that the “crypto-asset sector presents potential opportunities… for banking organizations, customers, and the overall financial system.” It continued by noting the importance of agencies providing clarity and guidance, particularly to “promote safety and soundness, consumer protection, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules.”
“It’s been a long time coming, but our regulators seem to finally see the urgency in developing a rulebook for the digital assets space. It is interesting, if not particularly remarkable, that they highlight the need is for banking organizations. But the industry, as a whole, has needed standardization for quite some time, including in the area of AML. Even if it took pressure from the banking industry, it will be a welcome change for the industry. It is definitely a win,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.
“We’ve gotten to a point, given that central banks are now racing to release their own digital currencies, that regulators understand they need a more nuanced approach than a simple ban. They can’t ban it. Blockchain is too powerful. They can’t wish it away. Digital assets are here for the long-haul. Now, they’re faced with the task of protecting the general welfare while ensuring that industry can function and take advantage of everything the new innovations offer,” said Gardner. “One thing that most regulators can agree on, even if they’re not saying it, is that they don’t want to cede the power of the blockchain to other countries, particularly their adversaries. This is about more than Bitcoin. This is about the future of the financial system. Countries which attempt to ban, rather than embrace, new technologies will be left behind.”
The statement notes that “[t]hroughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to: [c]rypto-asset safekeeping and traditional custody services [and a]ncillary custody services.
“Functionally, this could be a sign that we’re moving beyond looking primarily at AML and to the industry more generally. Consider the specific mention of custody, a part of the industry which has raised its share of questions. For example, one of the leading providers in the industry has been named in a lawsuit which alleges that they are responsible for the loss of $70 million in digital assets. $70 million in losses is far from buttoned up. I think that regulators are going to have to recognize that custodians have an even greater role in the trading of digital assets as compared to dealing in more traditional assets,” said Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“Headlines like that, $70 million in losses, whether due to incompetence or malfeasance, it doesn’t inspire confidence. And this is an industry which deserves the full confidence of mainstream investors. The technology is worthwhile, and, indeed, it is slated to change the way the world interacts with money. In order to get to that point, we must insist on service providers which prioritize safety and security,” opined Gardner.