Fintech UK is looking to partner with registered / regulated (or soon to be) cryptoasset firms on building out a cryptoasset section on our website.  If you are senior executive at a UK registered cryptoasset firm, please contact us here to discuss the proposed project.  Also happy to hear from senior executives at businesses which support crypto firms to support the project. See our CRYPTO page for more information

If you are are crypto firm seeking regulatory advice or director services, please contact CompliReg for assistance at the details appearing here and check out its VASP registration and other authorisation services here.

Hope you like the Map (Version 2.0)!

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Welcome to the second edition (version 2.0) of Fintech UK's and CompliReg's (a leading provider of fintech consulting services to crypto asset firms) UK FCA registered Cryptoasset Firms Map.

There are now 35 registered Cryptoasset firms appearing on the Financial Conduct Authority's (FCA) website as at Monday 18th July 2022.

The first 5 of these firms were registered in 2020. According to the FCA's records, the first registered Cryptoasset firm was Archax on 18 August 2020.  Then in 2021, the FCA registered 22 crypto firms.  Thus far in 2022, the FCA has registered 8 crypto firms.  The most recent to be registered is DRW (7 June 2021).

As we pointed out when we released Version 1.0 of the Map, 2021 saw a flurry of activity and especially in the last quarter of 2021 when 16 firms received their Cryptoasset registration from the FCA - that was a  whopping 60% of the total pool of registered firms at that time. At the current rate, the number of firms registered in 2022 may be less than that in 2021, unless the FCA registers a large pile of crypto firms in the second half of 2022.

As we continue to Map registered Cryptoasset firms, expect to see certain logos appear more than once as several brands will be registering several Cryptoasset firms for different purposes, such as - for example - services for (1) trading and (2) custody. 

At the time we released Version 1, there were 218 (thereabouts) unregistered cryptoasset business listed on the UK FCA's website that appear, to the FCA, to be carrying on cryptoasset activity, that are not registered with the FCA for anti-money laundering purposes.  As of today, that number has increased to 248.

The firms thus far registered by the FCA include:

2020: Archax Ltd, Gemini Europe Ltd, Gemini Europe Services Ltd, Ziglu Limited, Digivault Limited, 

2021: Fibermode Limited, Zodia Custody Limited, Ramp Swaps Limited, Solidi Ltd, Coinpass Limited, CoinJar UK Limited, Trustology Limited, Commercial Rapid Payment Technologies Limited, Iconomi Ltd, Skrill Limited, Paysafe Financial Services Limited, Crypto Facilities Ltd, Fidelity Digital Assets LTD, Payward Limited, Galaxy Digital UK Limited, BABB Platform Ltd, BCP Technologies Limited, Zumo Financial Services Limited, Baanx.com Ltd, Bottlepay Ltd, Genesis Custody Limited, Altalix Ltd, 

2022: X Capital Group Limited, Enigma Securities Ltd, Light Technology Limited, eToro (UK) Ltd, Uphold Europe Limited, Wintermute Trading LTD, Rubicon Digital UK Limited and  DRW Global Markets Ltd

When we released Version 1 we noted that there were 37 firms Cryptoasset firms with Temporary Registration.  You will see 39 on the previous list, but two of those firms were in fact registered - thus there seemed to be a timing issue of the records at the FCA. Regardless, some of the 37 achieved FCA registration in 2022 and others have dropped of the current list.  Revolut Ltd, as of today, is the only firm listed on the Temporary Registration list and it was listed on December 2021 list too.  Interestingly, in addition to a cryptoasset registration, the Revolut group hasn't achieved the obtaining of its much talked about bank authorisation in the UK either.  ​

We are looking forward to seeing how many more will be registered before the end of the year.
This post also appears at:

• Fintech UK: https://fintechuk.com/fintech-uk-news/uk-registered-cryptoasset-map-version-20-monday-18th-july-2021 
• LinkedIN: https://www.linkedin.com/posts/peteroakes_fintechuk-crypto-digitalasset-activity-6954800838179491840-lCjM?utm_source=linkedin_share&utm_medium=member_desktop_web

Any surprises here?

In the same week that Bank of England, Deputy Governor for Financial Stability (John Cunliffe) said “Financial assets with no intrinsic value … are only worth what the next buyer will pay. They are therefore inherently volatile, very vulnerable to sentiment and prone to collapse,” we learn of yet another crypto firm filing for bankruptcy and the protection it affords.. 

Put another way: technology can’t remove all financial risks. 

Celsius Network, one of the world’s largest cryptocurrency lenders, filed for bankruptcy, following a wave of digital asset companies that have frozen assets and entered restructuring amid a sharp sell-off in cryptocurrencies thus far in 2022. 

Its business model was simple old-fashioned lending. Celsius took in customer deposits and lent out the funds at higher interest rates, making a profit from the difference. There is nothing innovative here, just as there is nothing innovative about Buy-Now-Pay-Later (laybuy on an app). In both cases it is simply technology putting a new spin on an old play. 

To lure investors, Celsius offered high-interest rates and claimed its risks were small. Yet according to a Financial Times investigation, Celsius took on increased financial risks in recent months as demand for loans from institutional investors waned. This is classic behaviour by financial firms when they finally see the writing on the wall. 

What do we learn from the filing? 

• Chapter 11 bankruptcy filing comes roughly a month after it froze customer assets, trapping billions of dollars across more than a million accounts.
• it listed between $1bn - $10bn in assets, the same amount in liabilities
•  100,000 creditors
• filing will be an “opportunity to stabilise its business” and undergo a restructuring “that maximises value for all stakeholders”.
• had it not restricted withdrawals there would have been a run on its deposits operating on a first come, first served basis, leaving others with illiquid and less certain claims. 

A rather ironic outcome of the Celsius failure is that Alvarez & Marsal, a consultancy best known for unwinding failed investment bank Lehman Brothers after the 2008 financial crisis, is Celsius’s restructuring adviser.

Cunliffe is also reported saying "Cryptocurrencies may not be “integrated enough” into the rest of the financial system to be an “immediate systemic risk,” but he suspects the boundaries between the crypto world and the traditional financial system will “increasingly become blurred.”.

Now Celsius is not alone. We have also seen the implosion of a highly leveraged crypto hedge fund, Three Arrows Capital, which filed for bankruptcy in July 2022 too. Crypto lender Voyager Digital also filed for bankruptcy recently while other companies narrowly averted a similar fate by taking in emergency cash at fire sale prices.  BlockFi agreed to a rescue deal with crypto trading exchange FTX on July 1 that valued the lender at up to $240mn, far below an earlier valuation of $4bn.

What about investors?

I don't mean the customers but the backers. Celsius’s failure is poised to leave venture capital backers nursing large losses. In late 2021, it raised $750mn from WestCap and Quebec-based pension fund Caisse de dépôt et placement du Québec at a valuation of more than $3bn. Ouch - especially for current and future retirees of the pension fund. Did they sign up their money for such illiquid investments?

Further Reading:

• https://www.ft.com/content/8d6dee7d-2cc9-4663-a0a2-e469686baca5
• ​https://www.cnbc.com/2022/07/13/tech-cant-remove-all-financial-risks-crypto-regulation-needed-boe-.html

This blog by Peter Oakes, Founder of Fintech Ireland and CompliReg.  Peter qualified as a lawyer in Australia, the UK and Ireland.  He is a director of a number of regulated innovative fintech and adviser to fintech and crypto firms and their professional service providers. Contact him here and follow him on Linkedin and Twitter (Fintech Ireland Twitter). 

A summary of this material appears at Linkedin here 

The first Irish regulated funds to take exposure to crypto-assets have been approved by the Central Bank of Ireland (CBI).

The funds, both Qualifying Investor AIFs (QIAIF), will obtain indirect exposure to Bitcoin, by acquiring cash-settled Bitcoin Futures traded on the Chicago Mercantile Exchange (CME). Before you get too excited looking to by some of the digital asset via the QIAIFs note that this channel of exposure is RESTRICTED TO PROFESSIONAL INVESTORS. [NB: As recently as March 2022 the the Central Bank has issued a warning on the risks of investing in crypto assets].  We have provided further details about the regulatory crypto investing landscape in Ireland under 'Further Reading' below.
 
Last month the CBI informed industry bodies that it had approved in principle at least one QIAIF with a low level of exposure to cash settled Bitcoin futures traded on the CME.
 
The two unnamed QIAIFs are the first type of such funds to provide indirect crypto exposure and approved by the CBI.
 
If you want your existing QIAIFs or you wish to establish a new QIAIF to obtain exposure to crypto assets, get in touch (details above).  I am asked on a regular basis by institutional investors and professional investors how they can get exposure to cryptocurrencies and other digitalassets via regulated products. Unless you are able to gain direct exposure via a virtual asset service provider (VASP), the Irish QIAIF model (non-UCITS) might be your avenue. Note however that the CBI has said it is highly unlikely to approve a UCITS proposing any exposure (either direct or indirect) to crypto assets. Thus retail investors wanting crypto exposure in Ireland need to turn to VASPs/Exchanges direct.

Through Fintech Ireland, CompliReg and the industry experts network, we know the lawyers, ManCos and depositories / custodians who can assist institutional/professional firms and funds promoters looking to gain exposure to the crypto markets.  Further, if you are seeking a registration as a virtual service asset provider or authorisation as a MiFID, emoney institution or payments institution to provide services to  institutional, professional and retail clients, check out our Authorisation Page.

Further reading:

• ID1145 - Central Bank of Ireland 44th Edition (20 December 2021) of the Central Bank AIFMD Q&A

​Question. Can a RIAIF or a QIAIF invest either directly or indirectly in crypto-assets?

Answer. Crypto-assets are generally considered to be private digital assets that depend primarily on cryptography and distributed ledger or similar technology. However, the nature and characteristics of crypto-assets vary considerably. For example, crypto-assets that are tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities)) may have a different risk profile when compared to other crypto-assets that are based on an intangible or non-traditional underlying. For the purposes of this Q&A “crypto-asset” is used to refer to the latter type of crypto-asset. The Central Bank must be satisfied that direct or indirect exposure to crypto-assets is capable of being appropriately risk managed. As of the date of publication of this Q&A, the Central Bank has not seen information which would satisfy it that direct or indirect exposure to crypto-assets is capable of being appropriately risk managed. Though crypto-assets do not all have uniform characteristics, the Central Bank has noted that they can present significant risks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks. Taking into account the specific risks attached to crypto-assets and the potential that retail investors will not be able to appropriately assess the risks of making an investment in a fund which gives such exposures, the Central Bank is highly unlikely to approve a RIAIF proposing any exposure (either direct or indirect) to crypto assets. In the case of a QIAIF seeking to gain exposure to crypto-assets, the relevant QIAIF would need to make a submission to the Central Bank outlining how the risks associated with such exposures could be managed effectively by the AIFM. The Central Bank’s approach in relation to crypto-assets will be kept under review, continue to be informed by European regulatory discussions on the topic and may change should new information or developments emerge in the future. 
​

• ​​ID 1100  - Central Bank of Ireland 36th edition (20 December 2021) of the Central Bank UCITS Q&A

​Question.  Can a UCITS invest either directly or indirectly in crypto-assets?

Answer. Crypto-assets are generally considered to be private digital assets that depend primarily on cryptography and distributed ledger or similar technology. However, the nature and characteristics of crypto-assets vary considerably. For example, crypto-assets that are tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities)) may have a different risk profile when compared to other crypto-assets that are based on an intangible or non-traditional underlying. For the purposes of this Q&A “crypto-asset” is used to refer to the latter type of crypto-asset. The Central Bank must be satisfied that assets in which a UCITS invests are capable of meeting the eligible asset criteria for UCITS and that indirect exposure to the assets is capable of being appropriately risk managed. As of the date of publication of this Q&A, the Central Bank has not seen information which would satisfy it that crypto-assets are capable of meeting the eligible asset criteria for UCITS or that indirect exposure to crypto-assets is capable of being appropriately risk managed. Though crypto-assets do not all have uniform characteristics, the Central Bank has noted that they can present significant risks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks. Taking into account the specific risks attached to crypto-assets and the potential that retail investors will not be able to appropriately assess the risks of making an investment in a fund which gives such exposures, the Central Bank is highly unlikely to approve a UCITS proposing any exposure (either direct or indirect) to crypto assets. The Central Bank’s approach in relation to crypto-assets will be kept under review, continue to be informed by European regulatory discussions on the topic and may change should new information or developments emerge in the future. 

• Central Bank of Ireland Warning (22 March 2022)

The Central Bank again emphasised that crypto assets are highly risky and speculative, and may not be suitable for retail customers. In particular people need to be alert to the risks of misleading advertisements, particularly on social media, where influencers are being paid to advertise crypto assets.  The Central Bank has published a plain English explainer for consumers on cryptocurrencies.

• European Supervisory Authorities (EBA, ESMA and EIOPA Warning (17 March 2022)

The ESAs warned consumers that many crypto-assets are highly risky and speculative. The ESAs set out key steps consumers can take to ensure they make informed decisions.