According to Lightstone, “Since it relies on pre-existing regulations, it won’t function as a standalone system.” He further noted, “A cryptocurrency business will be regarded similarly to any conventional financial entity,” emphasizing that “securing FCA approval remains a challenging process.”
For traditional banks and investment companies already familiar with these regulations, transitioning to the crypto space might be a straightforward task. In contrast, for newer cryptocurrency enterprises, the financial burden of creating governance, capital, and custody frameworks from the ground up could be significantly higher.
This difficulty is particularly highlighted by the FCA’s upcoming client asset guidelines, which will implement the Clients Asset Sourcebook (CASS) framework. This will necessitate that companies keep customer crypto holdings separate from their own funds through trust arrangements, while also introducing operational protections specifically tailored to cryptocurrency concerning private keys and reconciliations.
Lightstone remarked, “The requirements under CASS are quite demanding.” He suggested that this might drive new entrants to merge with or be acquired by established firms that are already compliant with CASS and have the necessary controls in place.
Adoption by Banks
The potential for industry consolidation emerges as banks become increasingly open to digital assets, following a reduction in regulatory ambiguity.
Simon Schneider, CEO of Sygnum Europe, stated, “Currently, less than 20% of banks in Europe provide any form of crypto services, indicating a significant gap in the market.”