As the crypto space evolves, so too does regulation -- and companies that prioritize compliance will have an advantage
In the most recent episode of the Building Blocks podcast, host and Prime Trust Chief Strategy Officer Kevin Lehtinitty talks with Hailey Lennon. An accomplished fintech lawyer and partner at Anderson Kill, Hailey gives us her take on the changing cryptocurrency regulatory environment and how she guides companies through it. Notably, she worked in regulatory affairs at Coinbase where she helped launch staking and lending products by working closely with regulators.
“To be in a space where I work with regulators and explain why their old rules shouldn’t govern this new technology, is really exciting. Just keeping up with the developments could be a full time job, so also implementing them, there’s never a dull moment.”
Education is the key to changing minds
In 2015, Hailey obtained her Certified Anti-Money Laundering Specialist certification (ACAMS) and launched her crypto career with Silvergate to help give cryptocurrency services companies and exchanges bank accounts.
“The [team] at Silvergate started to see that not only was this technology not so uniquely risky that it couldn’t be banked, but also that it was worth putting the resources and money into building a team to help bank it.”
Silvergate executives helped to get regulators comfortable with the crypto space by educating them on the technology. In Hailey’s view, this was the right way to approach regulation for an innovative technology, and informed her view on how to engage with regulators.
Prime Trust takes a similar approach to education - with our CEO Tom Pageler’s background in the Secret Service, we focus on educating the law enforcement and government community on the realities and potential of digital assets.
Benefits of the complex US regulatory environment
According to Hailey, the US has a much more complex regulatory environment than many other countries, having a state-by-state licensing system and multiple federal regulatory agencies. For example, every state has a money transmitter license, but New York state has an additional license called the BitLicense.
The BitLicense is like a money transmitter license but with specific crypto requirements including capital, hot and cold storage, and cyber security -- and any crypto company who wants to do business in New York must obtain one.
Our fractured regulatory requirements can make gaining access to the US market, or operating in a variety of states, complicated and challenging. “Regulation is a big barrier to entry [in the US]... There’s a lot of overhead. The same reason why some companies are leaving the US is why some companies aren’t coming into the US,” Hailey explained.
The flip side of this complexity is that separate and geographical regulatory agencies also means that there can be more flexibility for different approaches to crypto services. If a company is able to navigate the regulations then the US market can act like a moat around your services.
Working closely with regulators only makes things easier
Hailey recommends getting your regulatory ducks in a row. If you’re applying for a license, ensure all requirements are documented and prepared ahead of time. She also suggests that adhering to a thorough regulatory program, like that of the BitLicense, is beneficial to a company’s compliance strategy, and that developing a relationship with regulators will make growth easier.
“I don’t think the space gives regulators enough credit. Over the time I’ve been in the space, I’ve seen many regulators keeping up with the pace of this fast moving space, and understanding pretty difficult concepts. Federal regulators like the OCC getting into the space, the SEC -- [SEC Commissioner Hester Pierce recently] releasing a new three year safe harbor proposal. I think there are a lot of efforts for regulators not to just say, ‘this is how it is, we’ve given you guidance and clarity.’ I think regulators are catching up to speed and staying informed with the industry.
I think the regulators in the space do a really good job, all things considered. All these regulators are working in a very bureaucratic office with constraints. Just because a regulatory agency isn’t moving super quickly in how they're regulating the space, doesn't mean that behind the scenes they’re not understanding the struggles or issues.”
Learn more about Prime Trust’s one-stop-shop for regulated, compliant, and scalable financial infrastructure at primetrust.com.