Date: 01 November 2024
Author: FINTECH Circle

On June 29, 2023, the UK introduced significant legislation to bring stablecoins and crypto assets under regulatory oversight through the Financial Services and Markets Act 2023 (FSMA 2023). 

This landmark regulation enables the Financial Conduct Authority (FCA) to issue licenses for businesses providing crypto services, with the first licenses granted starting on October 8, 2023. 

Exactly one year later, 48 UK companies have received these corporate licenses. Globally, 195 countries have legalized crypto assets. Leading economies, including the European Union, the United States, Japan, Singapore, and Switzerland, have established similar frameworks, making crypto markets safer and more accessible. 

As evidence of the rapid development of crypto in the business, global payments infrastructure provider Stripe, which processes online transactions for millions of businesses, has recently acquired Bridge, a stablecoin infrastructure startup, in a deal reportedly worth US$1.1 billion.

To delve deeper into the impact of this evolving regulatory landscape, we spoke with Anastasiia Pervushyna, Director and the Money Laundering Reporting Officer (MLRO) at SENDS, a major UK-based fintech company. 

With extensive experience in regulatory compliance, Anastasiia offers valuable insights into the complexities of managing compliance in a rapidly changing environment, particularly when it comes to crypto assets.

Anastasiia, could you briefly explain what a crypto asset is? How do these assets differ from traditional financial assets, and what role do they play in fintech?

Crypto assets are digital or virtual assets secured through cryptography and decentralized technologies like blockchain. Unlike traditional financial assets, which rely on central institutions like banks or governments, crypto operates in a peer-to-peer framework, allowing users to transfer assets across borders quickly and with minimal cost.

Although SENDS doesn’t currently handle crypto assets, their growing role in the fintech industry must be addressed, especially when cryptocurrencies such as Bitcoin and Ethereum enable fast and cost-efficient cross-border payments.

Beyond payments, blockchain technology offers innovations in decentralized finance (DeFi), where services like lending, borrowing, and insurance become alternatives to traditional banking systems.

Regulatory frameworks like FSMA 2023 are essential in ensuring that companies engaging in crypto meet rigorous accountability standards, ultimately protecting consumers while fostering innovation.

Despite volatility and regulatory hurdles, crypto assets continue to gain traction. What factors are driving this increasing adoption?

The rising popularity of crypto assets can be attributed to several key factors. First, the ability to bypass traditional financial intermediaries is a strong driver, especially for cross-border transactions that are often slow and costly. 

Blockchain technology allows individuals and companies to send payments worldwide in minutes, with minimal fees and no need for banks or other third-party institutions.

For example, consider someone in Australia wanting to send money to relatives in London. A traditional bank transfer could involve a wire fee of about $25, along with additional currency exchange costs and delays.

By contrast, blockchain allows for nearly instant transactions at a fraction of the cost, providing a compelling use case for people who frequently send remittances or need to move money across borders.

Crypto also offers financial inclusion for those without access to traditional banking systems. Anyone with a smartphone can create a crypto wallet and join the global financial system. 

Furthermore, the transparency and security of blockchain are attracting institutional interest, with companies like PayPal and Tesla pushing the legitimacy of the market. Though SENDS doesn’t directly engage with crypto, we closely track developments such as FSMA 2023 to stay ahead of emerging trends.

Given the benefits of crypto, what challenges or risks do you see, particularly from a compliance standpoint?

While crypto offers exciting possibilities, it also presents significant challenges. Volatility is one of the biggest hurdles, as crypto prices can fluctuate drastically. For example, Bitcoin saw a 50% drop in value over just a few weeks in 2021. This makes it difficult to rely on cryptocurrencies as stable mediums of exchange.

Another concern is limited acceptance. Despite growing popularity, few businesses are equipped to handle crypto transactions due to volatility risks and the complexity of integrating crypto payment systems. In addition, hidden fees like gas costs can erode the value of transactions, especially when converting crypto back to fiat currency.

Security is also a major issue. Unlike traditional banking, where transactions are protected and can be reversed in fraud cases, crypto offers no such safety nets. 

Funds transferred to the wrong wallet are often irrecoverable, and the decentralized nature of crypto makes it a target for cybercriminals. From a compliance perspective, the lack of regulation, consumer protections, and the potential for illegal activities like money laundering are significant risks.

Given these risks, why do some companies continue to adopt crypto?

Despite the risks, many companies see crypto as a strategic opportunity. For businesses, the ability to accept crypto payments can open doors to new customers, some of whom may prefer or exclusively use digital currencies. 

Moreover, companies providing services like crypto exchanges and wallets are capitalizing on strong demand, creating new revenue streams.

Crypto is also valuable for international operations. It enables faster, more affordable cross-border payments, helping businesses avoid the fees and delays associated with traditional banks. 

Blockchain technology is even being used outside the financial industry, in sectors such as logistics and healthcare, to enhance transparency and efficiency.

What prevents other companies from embracing crypto?

Many businesses are hesitant to adopt crypto due to the risks mentioned earlier. Volatility, regulatory uncertainty, and compliance costs are major deterrents. 

The lack of clear, consistent regulations globally makes it difficult for companies to make long-term strategic decisions. Security issues also loom large, with high-profile hacks and thefts deterring businesses from entering the market.

Additionally, limited acceptance means that most companies would still need to convert crypto back into fiat currency, adding complexity and fees. For small- to medium-sized businesses, the technical challenges of integrating cryptosystems are also prohibitive.

Looking forward, do you think crypto will play a bigger role in the fintech sector, or are its risks too great?

Crypto’s future in fintech is promising but uncertain. Technological advancements are addressing some of the key issues, such as improving transaction speed and reducing costs. 

However, the future of crypto in fintech largely hinges on regulatory clarity. Countries like Switzerland and Singapore have embraced crypto-friendly policies, but broader adoption will remain a challenge without a unified global framework.

Retail adoption is growing, particularly among younger generations, while institutional players are cautiously exploring crypto’s potential. At SENDS, we remain focused on compliance but are ready to adapt as the landscape evolves. 

If regulations can strike the right balance between innovation and consumer protection, crypto could play an increasingly important role in the future of financial services.

To learn more about Sends and its special offers, please visit www.sends.co