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Tech Weekly: UK Apple Card en route? And crypto exchange Gemini’s Head of UK on FCA nightmare
On this episode of Tech Weekly, Nasson, Lily, and Charlie go through the latest in the worlds of crypto and fintech.
Lily chats to Blair Halliday, Head of UK crypto exchange Gemini — they go through why crypto exchanges will be at risk if they don’t register in time to get an all-important FCA regulatory approval.
And later Charlie talks to Nasson about Apple’s under-the-radar purchase of Credit Kudos, a UK open banking fintech, which could signal the introduction of the Apple Card in the UK.
Episode transcript (auto-generated)
Host 0:07 Hello and welcome to Tech weekly, a podcast by city am designed to keep you up to date on the latest in the world of tech crypto FinTech and beyond. I’m with city am reporters Lilly Russell Jones and Charlie crunchy. We have a bit of an extended episode today. Later I’ll be talking to Charlie about Apple’s purchase of UK open banking startup credit kudos, which as we’ll discuss makes the apple card and ever more realistic prospect in the UK. But first Lily will be talking FCA crypto regulation with Blair Halladay head of UK crypto exchange Gemini.
Lily Russell-Jones 0:47 Hello, so this week the FCA closed its consultation on strengthening the rules for promotions of high risk assets in the UK including crypto. The draft rules require firms to seek approval from the regulator for crypto adverts, and include requirements such as highlighting the fact that digital assets are not regulated in the UK to ensure that ads are clear, fair and not misleading. The STA also intends to classify crypto as a restricted mass market investment, meaning consumers would only be able to respond to crypto asset financial promotions, if they are classed as high net worth or sophisticated investors. Today I’m joined by Blair Halliday, the head of Gemini UK, one of the first crypto exchanges to be registered by the FCA under its anti money laundering regime. Good morning, Blair, thank you for joining me. Blair Halliday 1:33 I love it. Great to be here. Lily Russell-Jones 1:35 But this week, you shared your response to the SES consultation on crypto assets. You said that the new rules could damage the crypto industry in the UK by encouraging firms to relocate offshore. What’s behind your assessment? And what is the regulator potentially getting wrong here? Blair Halliday 1:51 Yeah, look, I think to kind of kick off Gemini, as you very rightly say, was one of the very first firms to receive a crypto asset registration from the from the FCA. And so we’ve definitely value and recognise the importance of of regulation. One of the concerns that we have, of course, in any regulation, it’s it’s in the actual intent matches what is there in black and white. Certainly our concern with some of the proposals is, although they pitched in most certainly kind of intending to, to provide consumer protection as their kind of ultimate driver. The actual, you know, then there may well be a flipside to that. You know, so one of our concerns is that we’re at the position now with crypto, it’s such a, it’s such a broad back, it’s such a broad kind of interest in crypto, and idea that, you know, the crypto firm, you can just simply just stop people from accessing crypto is not really you know, that that’s not the way it’ll be. The fact of the matter is we need to kind of go through a process of education, and enable people to really understand what crypto is about this, particularly this particular legislation will kind of put certain requirements on UK approved firms that will, you know, will potentially drive traffic from the UK to firms that are located abroad that are not subject to the same legislation and potentially put those customers at risk, the very ones that the FCA are looking to to protect. So ultimately, what we’re very supportive of any kind of legislation, when it comes to crypto for the UK market. We’re concerned that this particular these particular pieces of legislation actually might have the full effect, which is to actually put some consumers at risk. Lily Russell-Jones 3:52 So he saying this is a case of regulatory arbitrage because, as far as I was aware, companies that wish to advertise financial products or services to clients in the UK, would also have to follow the FCA rules for promotions of financial services and products, regardless of whether or not they’re actually registered here. Blair Halliday 4:11 Well, I think the the thing to bear in mind is that that particular part of it, so we’re talking about the financial promotion site, and that is open to anybody. And so if you kind of put that into context where we’re, you know, what about a week away several days away from the end of the UK, or the the FCA is temporary register, so that all firms are either registered or they’re or they’re not. So, but there there will be no differentiation as things stand in the financial promotion side. i There’s two parts to that. The first one is that a firm that is based outside of the UK, that is you know, that either has has attempted to get that registration or has made no attempt whatsoever, or in the first instance is attempted and failed. And they would be able to to advertise crypto activity into the UK market in exactly the same way and format as a as a UK registered firm, there’d be no differentiation. Lily Russell-Jones 5:12 Is there a sense that because firms who are registered in the UK have to undergo quite a rigorous process of regulation to be kind of FCA approved? I think there are only around 33 Crypto asset firms on the FCA register. And 80% of the firm’s that it has assessed to date have either been withdrawn, or their applications have been rejected. So is there a sense that these new rules because they don’t differentiate between FCA registered firms and firms which are based abroad, and perhaps haven’t gone through the same rigorous process, that the rules are kind of all stick with no carrot? Blair Halliday 5:47 Well, look, I think there’s, there’s a few bits to that. So I’ll concern with the financial promotion. So yeah, there’s a few bits to that. So the first one is that, you know, most certainly, we think that the UK Government and no doubt the FCA would rather, rather UK customers go to firms that are there that are under their control or under their own, I think they understand those firms better, they understand the activities that they’ve already gone through an AML process, and they understand the controls there. So that is obviously a key component to to ensuring you know, that the customers are treated carefully and safely and protected. I think one of the other, one of the other kind of aspects to all of this is about how a customer or rather how a firm goes about getting there and getting their advertising or their promotion out to market. So at the moment, there would only be particular types of firms that will be able to do that. And any other crypto firm that hasn’t got a FISMA type regulation or approval, as part of their as part of their overall business would have to seek a an S 21 approver. To look at their, their promotion and get that approved. One of the one of the challenges with all of that, again, is that there are firms that have other levels of approval, like any money institution licence or, or a financial permit an API approval as well, which which are not able to approve, or not going to be able to come back to an estimate you want to prove it. So they will not be able to approve their own financial promotions. So again, we’re going to have this, you know, the secondary market almost where firms are going to have to seek is when you want to prove as an external firms that will have little to no genuine understanding of crypto in all likelihood, but are going to be asked to prove these firms on, you know, on the on the basis of the foundation of which they would approve other financial promotions without understanding nuance. We recognise there is a there is an importance of being fair and not misleading in financial promotions. And clearly, you know, a lot of this activity that the FCA in the treasury I kind of look into and instigate here is on the back of some unfair and misleading activity that we’ve seen in the advertising space by some crypto firm for crypto actors. And so we recognise the importance that that a firm like ourselves needs to demonstrate that, that we are kind of behaving in the right way that our promotions are fair and misleading. But we should also be able to issue those ourselves. And we should be also accountable for that if we’re not following the rules, if there is something untoward? Lily Russell-Jones 8:45 Yeah, because I think a lot of what the regulator is saying in terms of trying to make those adverts more clear there and ensure that they’re not misleading by telling people that crypto assets aren’t regulated in the UK, and perhaps warning them that the price of these investments is likely to be variable, that that seems sensible from a consumer protection standpoint. Last year, I think at the end of the year, we saw adverts for a particular meme coin on the tube and they were everywhere during November and then its price spiked. So it reached an all time high and then it’s since lost 90% of its value. So surely there is kind of a case for regulating these adverts more effectively. Blair Halliday 9:26 100% and that is the and that should be the ultimate principle which is about being fair and and not misleading. And also making sure that you’re that you can back up your claims. You know, to give some context, even institution firms are also subject to financial promotions, rules as well. And so you have a very clear clear understanding of what what is appropriate what can be said and what can’t be simple. So, you know, to put a very clearly look where we are supportive Have the intent was supportive that financial promotions for the crypto market just can’t endlessly just say whatever it wants to say and be, you know, be aggressive calls to action. With, you know, especially when you’re not based in strong foundation of what you’re so we’ve we’ve fully got to pick on support there what, what the issue is, we don’t want to go from one extreme to the other, where, where, you know, we have this kind of absolute floodgates open situation. And now we can flip to the other where it’s very challenging for legitimate, you know, approved crypto firms such as ourselves, or others, to be fair, to go through a process of a very kind of simple financial promotion, without going having to go through significant hoops, which will involve external parties. When actually, I think the correct process would be to kind of look at those that have, that have got additional levels of regulation as part of their as part of their kind of their offering your money being one of those unable those firms to issue those directly. But also, as importantly, be accountable, because that’s what this is all about. It’s about, about providing some protection. And it’s also about getting accountability Lily Russell-Jones 11:21 on that. So you mentioned in your submission to the FCA is consultation that sa approved crypto asset firms could be placed at a competitive disadvantage by the rules. So could you elaborate a little bit on that, and is generally one of the firm’s who would consider moving offshore if the rules come into effect? Blair Halliday 11:40 You look, I think, to be very clear, you know, Gemini has always been a regulatory first company, that’s we’ve been, you know, we’ve been founded on that foundational pillars, three of those are fundamentally compliance or security bytes. And being compliant security and licencing, we came to the UK, not because it was in the first instance of our, you know, or if it’s outside of the US, not because it was easiest market market to get into. Because it was a it was a strong and robust regulatory market, there was a thriving crypto environment, we see ourselves going to environments that have, you know, really strong well known, reputational, strong reputation. Legislators, and the FCA could have definitely could settle in terms of you know, so that is your that is our kind of view on all that, and we’re in the UK to stay. Our concern on all of this is that your firms that have gone through the hoops like ourselves, that have your have made sure that they comply with with all the AML requirements, and will comply with the future bits of legislation when it comes to the financial promotions and, and whatever else further to come. Those firms will be kind of, you know, impaired in relation to that in compared to others that are that are deciding, you know, what, we’re just going to base ourselves elsewhere and kind of offer services in the UK, and not have to deal with the same issues and, and to be frank over the last kind of few few days now that the deadline is coming up. We are I mean, I have seen emails come in, you know, stating that certain firms are going to be offering their services out of different entities. So it’s not like this is something that might happen. It’s something that is already happening, and will kind of continue to happen. And I think it’s and that’s certainly the message that we’ve kind of given back in terms of our response to the consultation, and also to government agencies as about, you know, we all you know, Gemini and other kind of firms have Arielle, agree consumer protection is vital. And a consumer is much better protected when they’ve been serviced by a UK based firm. As soon as I go offshore, the UK has no no jurisdiction, no control, no, and there’s nowhere to support them. Lily Russell-Jones 14:02 And what do you think is behind that? Because so the deadline for companies to make it off the temporary register and be regulated crypto asset firms in the UK is the 31st of March. And we know that some really kind of big firms are on that temporary register, including copper. So is there a potential for these firms to have to stop trading at that break off point? And do you have a sense of why it’s been such a slow process for them? Blair Halliday 14:28 Well, look, I My understanding is that when a firm is they have a temporary permission and at which time they either get approved and then status status quo. And if they’re not, then my understanding is the FCA issued some guidance, you know, several weeks back that that that means that they should stop their activity through that particular entity, especially if they if the if they’re kind of caught within that the requirements Have the crypto asset registration, what activities are kind of caught under that? That bit of legislation? So, you know, it’s it’s I think the FCA have been relatively clear on that, but it is going to be, it is going to be interesting to see how they, you know, what they do after that date, whether they, they look to kind of actively enforce whether they will actually take a view of a kind of a wind down period? I don’t know. I suspect that probably the the format, but but we’ll see. Yeah, in terms of what, you know, these firms will do I mean, I guess, or rather, what, why it’s kind of taken so long. I guess this has taken it has taken a long time. This whole process has been particularly long one, but I guess it’s that there’s an aspect of all of this about understanding what a regulator is looking for. And some firms that have gone into this process kind of earlier or later, may not necessarily be as as ofay. With football it takes to get a regulatory licence. From Geminis perspective, we’ve already received the, our, our trust licence in the US from the New York DFS before we came into the UK market. So you’re my licence, and we have the controller registration. So we understand what it takes to get the regulator comfortable with our activity, and what we have to demonstrate on what we need to have. If people aren’t familiar with that process, it can be kind of it can be very daunting, and it can take time. And, you know, in the whole process of a regulatory approval is very much. And people may not necessarily understand this, but there is a lot of questions after the event. You don’t submit? And then you go, you know, all’s well. It’s very much a process of getting regulators comfortable and understanding of how your business operates. Because there’s many different ways for business to operate. There’s many different nuances. Lily Russell-Jones 17:00 So perhaps, under estimating a little bit what what was involved there. Blair Halliday 17:05 Yeah, absolutely. And then they’ve got a lot. And if you don’t, if you don’t engage, and you don’t, you know, if you don’t provide the information kind of early in upfront, it’s all about developing trust and understanding. It works both ways. And, you know, and I’m not I’m not party or aware of exactly the situation with every firm. But clearly, some firms have struggled to develop that trust and understanding. Lily Russell-Jones 17:29 So coming back to the detail of these FCA rules, and retail traders, the FCA has said that classifying crypto as restricted mass market investments means that consumers would only be able to respond to crypto asset financial promotions, if they’re classed as high net worth or sophisticated investors. Does this mean that retail investors would effectively be barred from investing in crypto assets under these rules? Blair Halliday 17:53 I think what it definitely means is that there is going to be a challenge to everyone to understand exactly who who was enabled to access this and how you would demonstrate an individual’s sophistication? I think, you know, it’s pretty clear here. From from my understanding in the crypto space that, you know, being a long standing trader or a high net wealth individual does not automatically qualify you as particularly understanding of the way the crypto behaves. And in the nuance world of crypto, whereas, you know, it’s very, like much more likely that a younger generation who have have far more kind of an understanding of crypto from from the ground up or from it’s very much its inception, could very much going to be argued to be far more sophisticated and understanding of the nuance of crypto. So then some maybe older generation high net wealth. So I think the these are the things that certainly that we’ve kind of gone back to the to the FCA on and the consultation. And given our kind of opinion on I think, yeah, I think there’s still some work to do. But ultimately, this is this is part of the thing that we’re definitely kind of calling out that, you know, that stuff people could interpret it in this in this format. And that is concerning to us. Because, you know, younger people or people that are deemed unsophisticated or not high net wealth, will still want to be active and involved in crypto and not been able to do so in the UK market will present a substantial risk event. And that’s we were pretty certain that that’s not the consequence that that the FCA or Treasury would want from us. And so we’re certainly kind of given some feedback in relation to that. I think what we what is really kind of important for all of this is that we kind of recognise that there’s there’s definitely an education piece that must continue. So I think it’s definitely a What’s the space we’ve given our feedback and We certainly think that the crypto should be available to everybody. But we also recognise that there are certainly an important aspect of education and all of us. Lily Russell-Jones 20:08 Okay, just to push you on that a little bit. So we’ve had some different views from the retail trading platforms in the UK for all stocks, not just crypto. So Hargreaves Lansdown one example, they’ve actually called for the FCA to go further with this ban, and stop people using credit cards to buy high risk investments, as well as policing maximum allocations for retail traders to make into assets like crypto. Are there some retail traders who do need to be protected? Do you think from high risk assets? Blair Halliday 20:39 Well, I think in the incidence of anybody seeking, seeking credit to, to, to make some kind of investment like that, I definitely think that that is definitely not something we would encourage. And you know, to be very clear, we don’t allow that on our platform. It’s its debit card, or bank transfer only. So we wouldn’t allow a credit card payment into our platform. I don’t Yeah, I definitely would. To an extent, I would agree that your credit card, I don’t think it’s an appropriate way to float into into a crypto platform, I think it’s vitally important that when you’re getting involved, from an investment perspective in crypto, that you have a clear understanding of what your disposable income is. Depending on the way you’re looking to use crypto, if you’re looking to use it as an investment perspective, then I think it’s a good way of diversifying your portfolio. Of course, like everything when it comes to trading, and the like, you can make, you know, quick money out of changes in prices and crypto in the same way you can do with any kind of effects, or other kind of markets. There are always opportunities there. Unless you’re particularly ofay. With that, and you’re particularly experienced in kind of understanding how those kind of markets work. Our view on Kryptos is certainly more on the hold side, on the long term, on the long term, investment side of things. So look into I won’t get into that particular institutions kind of comments, because I don’t necessarily agree with with everything they’ve said. But in terms of the importance, as I referred to before about education and understanding, you know, when and how to use crypto and, and understanding the risks and understanding your own personal circumstances that’s vitally important. So for certain, I wouldn’t encourage people to utilise credit cards the like, I think, I don’t think that is a particularly sensible thing to do. Lily Russell-Jones 22:44 Okay, I think it’s worth mentioning just at this stage that these rules are still just draft proposals from the FCA. So do you think that we could see some pushback against the SCA approach from the government or more from industry? And do you think that they might change the rules as a result, or take a slightly more lenient approach to retail traders? Blair Halliday 23:04 So you’re obviously right, these are, this is draft, and it’s in relation to a consultation, that the balance of sorts, responses from, from industry. So, you know, ourselves, I’ve spoken to many of my my peers across the UK landscape, that are all submitting their own versions of responses. And I know, other kind of industry bodies are also kind of submitting their responses as well. I think, quite clearly there are going to be a lot of a lot of things for the FCA to read through. And clearly, there’ll be dissension from, what their what their proposals are, and explanation of why, why they either won’t work or they need to be amended or kind of considerations need to be further considerations need to be applied. So do I think it’s going to look exactly like it does now? No, I don’t, because my history tells me that I’m ugly. There is a bit of nuance applied, and, and there’s always unintended consequences. And this is why we have consultation periods to enable that to happen. Just the broadness of how much will change? That’s, that’s a little unclear. It’s, you know, it’s very clear that you know, and I’ve said this, I’m sure I’ve said this to you before and to others, in 2022 is absolutely the year of of regulation in crypto and it’s, you know, nothing about this year is making me doubt that, but you’re absolutely right, it is draft. So we’ll wait and see. And we’ll wait to kind of review what the final. The final comments kind of looks like and it’s whether whether there’s anything else that we need to kind of raise up the poll as well. Host 24:49 So Charlie, what caught your attention this week in the FinTech sphere? Charlie Conchie 24:52 So we’ve had a very interesting acquisition story. In the word of UK FinTech this week, so credit kudos, which is a UK Open banking startup has been acquired by Apple, which of course requires no introduction. So credit curious essentially allows businesses to assess loan applicants via their kind of banking and payment transaction data so enables people who might traditionally be cut out of borrowing to apply for loans and and uses open banking technology to do that, which is a sort of means of sharing data between banks and financial institutions. So, while neither credit curious or Apple have confirmed the deal, yet, it was first reported by crypto news outlet called the block and links on credit culus. ‘s website now divert through to Apple’s terms and condition pages. So we can infer from that what we were or spokesperson said to us yesterday that Apple buys smaller technology companies from time to time, we generally do not discuss our purpose or plans Host 25:51 are very secretive. And do we know why Apple has bought it then? Charlie Conchie 25:55 So that is, of course the question on everyone’s sort of lips in FinTech in tech circles, what big US tech giant like Apple wants from? What is an exciting UK firm, but still a very small one in comparison, I think interesting when you look at the context of this, it does follow a much wider push by Apple into payments and financial services. So just last month, they announced the tap to pay feature for phones, which is going to be introduced later this year. So that I’ll allow iPhone users to pay merchants directly via technology on their phone to merchants using technology used by the firm block which is Jack Dorsey, the Twitter founders big payments firm. They also launched Apple cash card for peer to peer payments and working on reportedly a feature that will allow a buy now pay later style service for Apple Pay. So in terms of what they want from this acquisition, specifically, we spoke with a FinTech consultancy yesterday 11 F s. And they kind of said this could very much be a push from apple into that Buy Now pay later space. So the founder of 11 f. S. Simon Taylor said he’s been convinced for a while that open banking is the key to buy now pay later as it would essentially allow firms to do a full credit and affordability check on their classes immediately. When you look at Buy now pay later firms. The big kind of contentious issue at the heart of that industry is that customers who aren’t maybe, you know, ready to take on that level of credit are able to access it. So this would kind of allow a quite forensic examination of any customers as they come in to be using Buy now pay later via an immediate assessment of their transaction history. So he said that credit kudos would immediately provide apple with that capability. And what can we expect now then? So Simon’s other warning when we spoke to him was that Apple has a habit of these sort of acquisitions are then going silent for two years. And that is what we can also expect here. But I think that the timing is interesting in a broader sense as well, where MasterCard and Visa have both been quite acquisitive in the in the open banking space. And just last month, Visa acquired a Swedish Open banking FinTech called Tink for 1.8 billion euros and basis all been pushing to consolidate in the kind of border open banking space at somewhere that I think big firms like Visa, MasterCard, and now Apple as it pushes into payments are really aware of sort of the potential of open banking and how it might explode. Host 28:23 So that’s all we have for this week’s episode. Thanks, Blair for coming on. Thanks to Lily and Charlie and thanks for listening. See you next week.