“Because it uses existing rules, it will be much less of a stand-alone framework,” Lightstone said. “A cryptocurrency company will be treated like any normal traditional financial institution,” adding that “it will still be difficult to obtain authorization from the FCA.”
For established banks and investment firms that already operate under those rules, adapting to cryptocurrencies can be relatively simple. However, for newer crypto companies, the cost of creating governance, capital, and custody systems from scratch could prove considerably more onerous.
That challenge is particularly evident in the FCA’s proposed client assets regime, which applies the Client Asset Sourcebook (CASS) framework, which would require firms to segregate client crypto assets from firm funds under trust arrangements, while introducing specific crypto operational safeguards around private keys and reconciliations.
“CASS requirements are very onerous,” Lightstone said. “That could encourage newcomers to merge [with]”Being acquired by a traditional company that is already subject to CASS and has those controls in place.”
Bank adoption
The prospect of consolidation comes as banks themselves appear more willing to enter digital assets now that regulatory uncertainty is beginning to dissipate.
“Today, less than 20% of all banks in Europe [that] offer any type of crypto services today, so it is very underserved,” said Simon Schneider, CEO of Sygnum Europe.
