Financial news

By Amit Sharma and John A. Squires

The ongoing FTX debacle is just the latest in a series of recent cryptocurrency disasters (Terra-Luna, BlockFi, etc) that fundamentally call into question not only the sector’s future but also its very role within financial services.

Amit Sharma, CEO & founder of FinClusive, a regtech company that provides a global full-stack AML/FCC platform that connects traditional banking with blockchain- and web-based financial services and virtual asset networks, together with John A. Squires, one of the world’s leading fintech/regtech attorneys and a board member if FinClusive, explain why compliance is the way to move forward.

Some commentators chortle that the FTX meltdown has triggered the ‘end game’ for crypto while others fret over a prolonged ‘crypto winter’. Whether rumours of crypto’s demise are greatly exaggerated or indeed prescient can only be assessed by revisiting the sector’s original value proposition. We need to rethink the role that virtual assets – and the technology that underpins them – can play to better society in an increasingly digital global economy.

Crypto’s promise began as early enthusiasts looked to decentralise an entrenched economic system plagued with imbalanced centralised controls and a handful of dependent costly ‘intermediaries’ anointed as gatekeepers.

Early coins/tokens were not originally supposed to be entirely about asset speculation or generating outsized returns. Yet exchanges and trading engines were launched with abandon, as more virtual asset products poured into a market with a seemingly insatiable appetite–with many investors fueling this growth in search for near term returns.

No one appeared to ask ‘for whose benefit and at whose risk?’. Thus speculation and a ‘get into the game’ frenzy became synonymous with crypto itself, stymying true value creation and innovation.

Back to basics

Crypto’s promise can be restored and realised only by a return to first principles: providing universal, equitable, and secure access to the economic system; embedding governance and accountability otherwise relegated to less-well understood third parties; and securing the transfer of value directly between counterparties (peer to peer – or P2P).

The good news is that there are a host of services and real-businesses that can modernise governance and compliance, achieve security through universal access and privacy protections (e.g. digital identity), and facilitate the real-time transfer of value between people (payments) that already exist and are in use today!

Companies like FinClusive have been driving innovation in these areas for several years, affecting real positive change through the use of distributed ledger technologies (DLT), including embracing and embedding regulatory compliance to increase fundamental access to financial services and the economic resilience and prosperity it affords.

Yes, you are hearing us correctly – compliance is the answer, not the enemy, and increased regulation and oversight should be embraced, not eschewed. Given the events of 2022 and their aftermath, every demonstration of the sector’s dedication to innovation, democratisation and change ought to begin with the words ‘risk and compliance’.

Importance of CaaS

In terms of ‘products’, FinClusive has pioneered an innovative compliance-as-a-service (CaaS) platform, an automated full-stack FCC solution in one workflow, designed for traditional banks to modern financial technologies and web-based financial services. CaaS is built to support a wide array of industries and comply with modern global FCC standards and best practices in an increasingly cross-border, decentralised, and P2P financial services environment.

As finance continues to become more cross-border, decentralised, and peer-to-peer, innovative compliance solutions like CaaS are that much more important to individuals and organisations alike, especially those committed to the principles of a sound and reliable financial services economy.

“compliance is the answer, not the enemy, and increased regulation and oversight should be embraced, not eschewed.”

But even at a high-level – if true ‘democratisation’ is to be achieved, then regulatory engagement is essential, as well as a demonstration of the rules we all agree to and are willing to commit to. Enter the Rulebook – a FinClusive and industry-led living policy framework on how the virtual asset and Web3 community can walk the walk.

Embedding compliance controls with the power of DLT can and will drive inclusion while reinforcing the attributes of transparency, auditability and security. The Rulebook represents a proactive and disciplined approach to governance in this sector. It democratises crypto’s laudable core principles and is increasingly valued as a guide for non-financial companies developing and adding products for their clients and user-base.

Essential verifications

Increasingly, applications in the identity space are quickly becoming central to financial services and beyond. FinClusive has incorporated digitally verifiable credentials (FinClusive IDs or FinCIDs) that are part and parcel of its KYC/KYB processes, which create a utility for managing essential verifications required for financial services.

And, as the only non-bank US-based issuer and verifier of legal entity identifiers (LEIs), FinClusive has combined these technologies to deliver automated KYC and KYB verification, transparency, and privacy protections, while building an ecosystem of trust between every party.

Moreover, identities can be verified in near real-time and can enable customers/partners to attach these unique identifiers to underlying transactions. FinClusive’s ‘FinCIDs’ thus enable tracking while simultaneously protecting underlying personal information. In a world increasingly involving cross-border interactions, with sometimes unfamiliar counterparts, these applications promote safety, accountability, and inclusion.

For the industry, blockchain-enabled applications are presently and woefully under-leveraged as key security infrastructure components. Security must be central to every step and all products, delivery channels, and data warehousing. NIST-based standards have been built into every aspect of FinClusive’s compliance-centric platform, something that should be paramount in any native web- and cloud-based global operating environment.

We’ve proven that this kind of integrated, innovative security system can be built on top of decentralised compliance infrastructure, leveraging powerful attributes of the blockchain. It’s high time this notion is truly made practical industry-wide as well.

Next steps

That changes are coming could not be more clear – particularly in terms of the regulatory backdrop in which virtual assets operate. Whether or not the industry more broadly also chooses to get crypto back to its promising future remains to be seen, and investors play an important role in this recalibration.

If the sector so chooses, highlighting crypto’s true use cases (compliance, security, digital identity, and payments) can carry the day, because they have real, tangible benefits for society – from financial inclusion to promoting real economic growth, resilience and achieving greater safety, soundness and security from a technology that has been categorically under-leveraged in these ways to date. If so, we can all capture and capitalise on the true and realisable promise virtual assets can bring to the global economy.

By Amit Sharma and John A. Squires