New rules from the FCA hint at further regulatory action in the UK, while uncertainty triggers another price correction.

FCA Travel Rule

From September 1, cryptoasset businesses in the UK will be required to collect, verify and share information about cryptoasset transfers, known as the Travel Rule. This is designed to bring greater transparency to cryptoasset transfers, making it harder for criminals to use cryptoassets for illicit activity, the FCA has said.

Detailing the new rules, the FCA set out its expectations for firms.

• Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.
• Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
• Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule.
• Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:

• Take all reasonable steps to establish whether the firm can receive the required information. 
• If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.

When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule:

• If the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the Travel Rule in those countries.
• The UK cryptoasset business should take these factors into account when making a risk-based assessment of whether to make the cryptoassets available to the beneficiary.

Binance stalls

Last Tuesday, Binance filed for a protective court order against the SEC. “The SEC has still yet to identify any evidence suggesting that customer assets were misused or dissipated in any way,” the filing said.

The order relates to SEC claims in June that Binance was operating unregistered exchanges, broker-dealers, and clearing agencies, as well as engaging in wash trading. “They attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value US customers on their platforms. The public should beware of investing any of their hard-earned assets with or on these unlawful platforms,” SEC Chair Gary Gensler said.

Binance claims the SEC’s resulting requests for information were overly broad. “The SEC has spent the past 45 days serving incredibly overbroad and unreasonable discovery requests that seek, on their face, every single document in [Binance.US] possession related to customer assets,” Binance US said. “The SEC has been steadfast in its belief that the consent order gives it carte blanche to investigate every aspect of [our] asset custody practices without any discernible limitation whatsoever.”

The Financial Times speculated that Binance is now feeling the full impact of the FTX collapse, having stepped into its place as the largest exchange in the US. “Binance’s size isn’t just a problem for regulators. Crypto evangelists fear its success is an existential problem for an industry that champions decentralised finance where no one actor or entity holds too much sway,” the FT said.

Prices fall

Around $1 billion in crypto was liquidated in the past few days, according to the crypto press. Bitcoin reportedly accounted for nearly half that loss. It was described as a “bloodbath” by Cointelegraph.

But sharp falls in crypto prices are common during times of regulatory uncertainty.

“Multiple factors that are beyond the realm of crypto seem to be affecting sentiment. These include rising bond yields in the US along with Chinese property giant Evergrande filing for US bankruptcy protection, which has in turn impacted the Chinese yuan and indirectly influenced bitcoin sentiment,” says Lucas Kiely, Chief Investment Officer, Yield App.

“There are, however, reasons for optimism despite the challenges. These include the approval of Europe’s first spot bitcoin ETF and Coinbase’s approval to offer US futures, which have the potential to rekindle hope and momentum in the market.”