Regulating Cryptoassets

The FCA has published a consultation document on the regulation of cryptoassets – particularly stablecoins in the first instance. It should be of interest to anyone investing in cryptocurrencies or considering doing so. To quote from it:

5.9 If a cryptoasset custodian were to fail today, the lack of a clear regulatory framework could result in uncertainty that would likely cause harm to clients through delays in the return of assets, extra costs or, worst of all, loss of their assets. Without clear regulatory standards to which cryptoasset custodians are required to adhere, cryptoassets may not be safeguarded adequately, which may lead to losses should the cryptoasset custodian enter insolvency (whether due to being treated as assets of the custodian, or through operational errors). In addition to the harm to clients, an outcome that results in uncertainty in insolvency may impact confidence in the overall regulatory regime.

5.10 This was shown in the recent failures of Celsius Network LLC and the FTX group, both of which provided cryptoasset custody services. According to its recent bankruptcy filing, Celsius had misappropriated client assets and at the time of its insolvency owed $4.7bn to customers. In the case of FTX, at least $8bn of client assets were reported to be missing. According to filings in the US bankruptcy court for Delaware on FTX Trading, FTX’s practices included ‘potential commingling of digital assets…use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data…’ and ‘an absence of lasting records of decision-making.’

See for details.

Roger Lawson (Twitter  )

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