Lawyers explain the impact on retail investors, industry

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Two UK-based tech lawyers spoke to Insider about crypto regulation. One said tighter regulation could help crypto firms outperform traditional market players. They said the regulations likely target B2C crypto tokens and major exchanges, impacting retail traders.

The stereotypical cryptocurrency entrepreneur might be an avid libertarian with limited traditional financial experience and a strong aversion to regulation.

But legal experts say some of the biggest players in cryptocurrency are realizing that some regulation will help build trust and protect consumers, thus improving the chances of crypto companies replacing their more traditional rivals on the market. the market.

“There are different views,” said Mark Lewis, senior consultant at London law firm Macfarlanes. “Some crypto companies would welcome regulation because they want to demonstrate to regulators that they are sophisticated and mature enough to have the systems and controls in place so that they are not easily hacked.”

“As far as I’m concerned, regulation like this is a good thing,” he added. “But some figures in decentralized finance find that applying regulation to an uncertain regime can be difficult and costly for start-ups.”

The debate over cryptocurrency regulation is intensifying on both sides of the Atlantic. New SEC chairman Gary Gensler recently pleaded for greater investor protection in the sector, while in June the UK financial watchdog decided to ban the important Binance crypto exchange.

Charles Kerrigan, CMS London’s international banking and financial partner, said many large crypto firms have concluded that regulation, if implemented in the right way, will benefit their business models.

“The crypto industry knows that to be successful, scams and malpractice cannot be the first thing that comes to mind or, worse yet, the wallet of people who test the waters,” he said. he told Insider. “Regulation exists for good reasons: consumer protection, industry standards and things like that.

“It is now not difficult to predict that the market infrastructure associated with crypto could replace the existing market infrastructure,” Kerrigan added. “It could be truly transformational.”

Regulators in the UK and US have been active in implementing anti-money laundering laws. In July, the London Metropolitan Police seized nearly $ 250 million in cryptocurrency as part of an international money laundering operation.

“As the industry evolves, this topic is gaining more attention as small percentages start to count and that’s where we are now,” Kerrigan said. “Companies and projects need to be clear about their compliance. “

Kerrigan and Lewis both agreed that another primary concern will be protecting retail investors. Currently, 2.3 million Britons own crypto tokens in one form or another, according to the Financial Conduct Authority.

“The concern of the FCA is that many of them don’t understand the risks they are getting into,” Lewis told Insider. “There will undoubtedly be a need for stricter regulation for the most popular B2C crypto products such as exchange tokens and utilities.”

Lawyers said that regulation would likely take the form of education from crypto exchanges, coupled with reforms. There is currently significant scope for greater regulation as exchange tokens like bitcoin and ether, which allow exchange and transfer of value without centralized support, are unregulated.

“Nothing prevents retail investors from buying or selling crypto products, but the exchanges themselves have to be registered, so regulation primarily goes through platforms, exchanges and markets,” Lewis said.

“A sophisticated retail investor would want the freedom to be able to trade with a range of crypto providers, and these could well include cryptocurrency derivatives and security token providers,” he added. “This is an area where I would expect to see more frustration for some retail investors.”

The two agreed that the debate over crypto regulation will only intensify over the next five years.

“Crypto is a cultural phenomenon,” Kerrigan said. “Much more than half of my job now is working with crypto and blockchain companies.”

“It is an incredible privilege to see in real time the interplay between existing rules, new technologies, new business models and the rewriting of the rules on how value is acquired, held and distributed,” he said. -he adds.

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