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Too complex for individuals?

Too complex for individuals?

Too complex for individuals?

Just a while ago, the UK’s financial markets authority (FCA – Financial Conduct Authority) restricted the marketing, sales, and distribution activities of certain crypto-based products for retail investors mainly due to the difficulty of risk assessment and the complex structure of crypto assets. All corporate entities that sell, publicise, and distribute cryptocurrencies and side products like futures, options, the contract for difference (CFDs) to retail users will be affected from the ban starting from January 2021.  

In the meantime, another restriction came from the other side of the world, South Korea, where the use of anonymous bank accounts was banned in cryptocurrency trading. Starting from 2021, cryptocurrency traders in South Korea will not be allowed to make deposits into their virtual currency exchange wallets unless the names on their bank accounts match with the name on the accounts for cryptocurrency exchanges. The regulatory body of the South Korea, Financial Services Commission, put another restriction to all foreigners; including residents, nonresidents, ethnic Koreans with foreign citizenship; for trading cryptocurrencies throughout the Korean financial markets. The main motivation for banning activity was specified as providing an adequate control framework on anti-money laundering, tax evasion, fraud, and other illegal activities. The implementation requires that all investors must open an account with their legal name at one of the six banks. The regulation is similar to the Know your Customer (KYC) verification system in the U.S. market.

Is banning an adequate solution for decreasing the risk and protecting small-scale investors within financial markets? The answer is short and certain: No! Despite both of the aforementioned regulations aim to protect the individual investors, strict regulations may create other risks such as creating an outflow of funds and innovation. Enforcing superficial controls will drive cryptocurrency transactions to go underground and strike positive leverage effects of blockchain technology. Any restriction on financial markets, especially on digital markets, will not put away speculative usage of market components and will prevent practicing of technology for an auditable and secure digital financial ecosystem. Moreover, the main technology behind cryptocurrencies, Distributed Ledger Technology (DLT) will not let any banning activities permanently because of its own structure. Instead of banning activities with wide coverage such as the ones like in the UK, South Korea, or India national supervisory authorities should develop risk-based frameworks to monitor and regulate crypto asset markets. Allowing high level of accessibility and user autonomy, enabling incredibly low transaction fees and focusing more on peer-to-peer focus are irreplaceable and irresistible advantages of cryptocurrency markets which all financial markets indices in the world will fight for having.       

We will touch on more points about the international regulatory perspectives in the following articles. For any further questions, please reach us via or visit our CryptoIndexSeriesTM Platform for better analysis of the crypto market space.


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