Last week Monex, one of Japan’s largest online stock brokers and listed on the Tokyo Stock Exchange, made the official announcement to investors that it was weighing up the acquisition of Japanese cryptocurrency exchange Coincheck. The company that operates the Toronto Stock Exchange is also launching a cryptocurrency exchange. Could we see similar developments here in the UK?
The value of the Monex/Coincheck deal, should it go through, is being estimated as worth ‘several billion yen’, or tens of millions of pounds. An even larger Japanese online stock broker, SBI Holdings Inc, has also obtained a license to run its own exchange. It is launching an in-house product rather than making an acquisition but has postponed the project to further ensure cyber security levels, an issue which has plagued cryptocurrency exchanges. Coincheck was earlier this year hit by a cyberattack that saw $530 million in digital assets stolen from its account holders. The exchange subsequently refunded losses from its own funds.
Monex’s move for Coincheck, whether a deal eventually goes through or not, demonstrates a new trend in Japan of mainstream financial services moving into the cryptocurrencies market. Messaging app company Line Corp is also seeking approval to operate a cryptocurrency exchange through its payment transfer and services arm, used by 40 million to send money via the app.
TMX Group, which operates the Toronto Stock Exchange, the world’s 9th largest, also announced in late March that it planned to launch a cryptocurrency exchange by the middle of this year. The exchange will be operated by wholly-owned subsidiary Shorcan Digital Currency Network (DCN), in partnership with Paycase Financial, a Toronto-based Blockchain financial services provider. Canadian cryptocurrency exchange Coinsquare is also planning a 2018 IPO and listing on the Toronto Stock Exchange.
Could UK Stock Brokers Operate Cryptocurrency Exchanges?
The moves by major mainstream financial services providers operating in developed markets into cryptocurrencies raises the question of whether me might not see similar moves here in the UK in the foreseeable future. Hargreaves Lansdowne or the LSE operating a cryptocurrency exchange sounds farfetched but is it?
There are important differences in how cryptocurrencies are classified in Japan and Canada in comparison to the UK that mean it might be some time before we see similar developments on these shores. In Japan, a recent revision of the country’s Payment Services Act legally defines cryptocurrencies as a ‘means of financial settlement’. Cryptocurrency exchanges are now required to register with the Japanese Financial Services Agency and submit annual reports.
In Canada cryptocurrencies themselves are not regulated but exchanges and other service providers that consumers use to ‘enter or exit the network’ do have to be licensed as money service businesses and register all transactions.
In the UK, there is not yet any regulatory regime or framework for the classification of cryptocurrency service providers. One repercussion of this is UK companies in the cryptocurrency space reporting a hostile attitude from mainstream financial services providers. An FT article from October last year included quotes from the management of two companies in the space who had been denied banking services in the UK. James Godfrey, head of capital markets at BlockEx, a platform for trading digital assets told the FT that the company had been forced to open banking facilities with a Bulgarian bank after their Metro Bank account, the only one the company had been able to open in the UK, was shut down. This was corroborated by Michael Hudson, chief exec. Of Bitcoin investment company Bitstocks, who stated “it is almost impossible to get a UK bank account”.
The current environment in the UK would seem prohibitive to any move by a British online stock broker or exchange starting to run a cryptocurrency exchange. However, the UK is expected to unveil a new framework of regulation for the cryptocurrency and digital assets market later this year. The FCA, UK Treasury Committee and Bank of England are in the process of drafting a discussion paper on the considerations, risks and opportunities the cryptocurrency market represents. The contents of this paper, and subsequent regulatory framework, will go a long way to influencing whether mainstream finance companies in the UK enter the space in a way we are seeing in Japan and Canada.