How do you regulate the most hyped, chaotic asset class ever seen? An asset class described as an “infectious disease” (Barclays), a funding Trojan horse for terrorists (Meir Amit Intelligence and Terrorism Information Centre) as well as a mirage (billionaire investor Warren Buffett)?
That’s the question global regulators – from Washington to London to Buenos Aires, many barely aware of this class of security till last year – are now under pressure to answer.
Crypto respect has been slow. But it’s inching up. On 17 April IMF boss Christine Lagarde blogged that some cryptocurrencies were “fast”, “inexpensive” and their underlying efficiency could help markets function “more efficiently”.
“An important initial step,” she added, “will be to reach a consensus within the global regulatory community on the role crypto-assets should play.”
Tax and protection money
So, roll on the policy makers: in early April the UK’s Financial Conduct Authority said it wanted more regulatory grip on cryptoassets – cryptoassets being a more accurate term given no crypto is a real medium of exchange – and will join forces with the Bank of England and the Treasury in the third quarter of 2018 to plough forward.
If cryptoassets can be regulated they can be taxed – a huge Treasury incentive. For consumers, regulation may offer a measure of protection. Pricing discrepancies might also fall as cryptos become more accepted (if so the City of London might want a digital asset exchange up and running fast.)
However Karen Vickers, head of financial crime at financial advisory Fscom, worries UK regulations could end up being a retrofit cobbling of existing policies and procedures. “They won’t provide,” she told Capital, “the same degree of benefit as those which are fit-for-purpose and designed to factor in the differences between cryptocurrencies, crypto-assets and utility tokens.”
Regulation and resource worry
How regs are applied is just as important. Vickers says regulators seem to be flying blind at the moment. “The regulators seem unsure about what or how to regulate and, until something changes here, it’s hard to make a clearer prediction.”
Stephen Bennett is head of the crime team at Gardner Leader solicitors. He recently defended a Bitcoin trader who was targeted by thieves in his own home. The trader was quickly embroiled in a money laundering and drug trafficking scam – on behalf of what he thought was a legitimate client.
Bennett says while regulation is inevitable, how will the police handle it? There is a massive education gap, plus on-going resources pressure.