Author: Reuters

By Huw Jones

LONDON (Reuters) – Britain set out 30 measures to overhaul the financial sector on Friday, including a repeal of ‘burdensome’ EU rules the government says will unlock investment and maintain the City of London as one of the most competitive financial hubs in the world.

The planned reforms also include a review of rules put in place following the financial crisis over a decade ago to make bankers accountable for their decisions and easing capital requirements for smaller lenders, after much lobbying by banks.

The City has been largely cut off from the European Union by Brexit, putting pressure on the government to ease rules as Amsterdam overtook London to become Europe’s top share trading centre, adding to competition from New York and Singapore.

Leaving the European Union allows Britain to write its own rules, but as it hosts scores of international banks, it has little room to diverge radically from international norms.

“The government’s approach to reforming the financial services regulatory landscape recognises and protects the foundations on which the UK’s success as a financial services hub is built: agility, consistently high regulatory standards, and openness,” the finance ministry said in a statement.

UK finance minister Jeremy Hunt will formally set out the plans at a meeting with financial sector officials in Edinburgh.

Now dubbed the “Edinburgh Reforms”, the proposed reset had been trailed as “Big Bang 2.0”, a reference to the 1980s share trading overhaul, raising expectations of a big deregulatory push which left banks fearing costly systems changes.

But the emphasis has shifted to reviewing and tweaking rules while remaining aligned with global standards, rather than any wholesale dismantling of regulations.

The batch of planned reforms include a review of securitisation and short-selling rules, overhauling prospectuses issued by companies when they list, and a plan for repealing and reforming rules that were introduced when Britain was in the EU.

Other plans include a consultation in coming weeks on a central bank digital currency, a project that Prime Minister Rishi Sunak was keen on as finance minister.

There will also be a consultation on regulating compilers of ratings on company’s environmental, social and governance (ESG) impacts.

“It is important for people not to overplay this – there is no sense of any move back to a pre-financial crisis world,” said Jonathan Herbst, a lawyer at Norton Rose Fulbright.

The EU is updating its own financial rules to reduce remaining reliance on London, and is ahead in areas like cryptoassets.

ACCOUNTABILITY

The reforms target two sets of rules introduced by Britain in the aftermath of the financial crisis over a decade ago when the government had to bail out undercapitalised banks while few individual bankers were punished.

The first set, known as the senior managers’ and certification regime (SMCR), requires banks and insurers to name individuals responsible for specific activities, making it easier for regulators to punish them when things go wrong.

Bankers have complained that regulators take too long to vet these senior appointments.

The second set of rules requires banks to “ring fence” their retail arms with a cushion of capital to insulate deposits from a blow up in riskier activities, such as trading derivatives.

The ring-fencing regime will be reformed to free retail focused banks and ease “unnecessary regulatory burdens on firms while maintaining protections for depositors”.

Banks have lobbied to either scrap the rule or significantly raise the deposits threshold which triggers the requirement. The changes are likely to ease burdens on smaller banks to help Britain’s longstanding attempts to increase competition in a sector dominated by HSBC, Barclays, Lloyds and NatWest.

Bank of England Deputy Governor Sam Woods said in 2020 that he would defend the ring-fencing rules to his “last drop of blood”. The BoE said on Friday it would work with the ministry to ensure a safe and competitive financial system.

The ministry will also review EU-era stock and bond trading requirements known as MiFID II, in particular a rule requiring brokers to itemise or “unbundle” their customer charges for research on stock picks and for executing stock orders.

Britain had already set out initial reforms in its financial services and markets bill being approved in parliament. It includes giving regulators an extra objective of paying heed to the City’s global competitiveness when writing rules.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown, said London’s financial centre has been severely held back since Brexit. “Sadly, the allure simply isn’t there, with many of the UK’s brightest companies being snapped up by overseas investors, and London losing its top share-dealing status,” she said.

Other reforms already announced include scrapping a cap on banker bonuses and easing capital rules for insurers. A public consultation on regulating crypto assets has also been flagged.

(Reporting by Huw Jones, writing by William James; Editing by Kate Holton and Elaine Hardcastle)

NICOSIA (Reuters) – Euro zone banks are relatively healthy at the start of the economic downturn and a key priority will be to keep down the stock of soured loans, European Central Bank supervisory chief Andrea Enria said on Friday.

Enria added that supervisors must stay alert to the potential systemic risk from crypto assets and there was a growing need for a global regulatory framework.

(Reporting by Michele Kambas; writing by Balazs Koranyi; Editing by Toby Chopra)

LONDON (Reuters) – Britain on Friday set out plans to overhaul the financial sector including a review of rules to make bankers accountable for their decisions and easing capital requirements on smaller lenders.

Here are some of the measures announced:

– Reforming the Ring-Fencing Regime for Banks

– Issuing new remit letters for the PRA and FCA with clear, targeted recommendations on growth and international competitiveness

– Reforming securitisation regulation

– Launching a Call for Evidence on reforming the Short Selling Regulation

– Welcoming the PRA consultation on removing rules for the capital deduction of certain non-performing exposures held by banks

– Overhauling the UK’s regulation of prospectuses

– Committing to establish the independent Investment Research Review

– Committing to having a regime for a UK consolidated tape in place by 2024

– Consulting on reform to the VAT treatment of fund management

– Consulting in Q1 2023 on bringing Environmental, Social, and Governance ratings providers into the regulatory perimeter

– Consulting on a UK retail central bank digital currency alongside the Bank of England in the coming weeks

– Publishing a response to the consultation on expanding the Investment Manager Exemption to include cryptoassets

– Laying regulations in early 2023 to remove well-designed performance fees from the pensions regulatory charge cap

(Reporting by William James)

WASHINGTON (Reuters) – The U.S. securities regulator on Thursday warned public companies to examine whether they need to disclose to investors any potential impacts from recent market volatility and bankruptcies in the cryptocurrency industry.

In guidance to public companies, the Securities and Exchange Commission (SEC) detailed information that businesses may be required to share with their investors, including whether the firms have any financially material exposures to counterparties that have filed for bankruptcy or become insolvent.

Public companies are already required by law to disclose financially material information to investors, but the SEC frequently issues guidance to firms about how they should address exposure to major events.

Thursday’s guidance comes after months of turmoil in crypto markets and the recent collapse of major crypto firms FTX and BlockFi Inc.

(Reporting by Chris Prentice in Washington; Editing by Matthew Lewis)

By David Morgan

(Reuters) – House Financial Services Committee Chairwoman Maxine Waters told Reuters on Thursday that she is prepared to subpoena FTX founder Sam Bankman-Fried, if he does not agree to appear before the panel next week, and she is working out the best way to do it.

“We’ve made it clear that we want Sam at our hearing on Dec. 13. If he does not cooperate, then we are prepared to subpoena,” Waters said in an interview in the U.S. Capitol.

Regulators around the globe, including in the Bahamas where FTX is based and in the United States, are investigating the role of FTX’s top executives including Bankman-Fried in the firm’s stunning collapse, Reuters has previously reported. The crypto exchange filed for bankruptcy last month after a liquidity crisis that saw at least $1 billion of customer funds vanish.

Prosecutors and regulators have not charged Bankman-Fried with any crime.

Waters said she has the authority to issue a subpoena herself but could put it to a committee vote, adding she would first work out the procedure with Representative Patrick McHenry, the Republican lawmaker who will chair the panel when his party assumes control of the House in January. She said no decision has been made so far. “I could really do it myself. We’d probably do a vote,” she said. “I have to work it out with Mr. McHenry how we do it. But we will issue a subpoena.”

“Either he participates or not. And that’s when we make our decision,” Waters said. “It’s only proper and right, and makes good sense, to say we want you here.”

She declined to say whether Bankman-Fried would be required to appear in person or could testify by video link.

A spokesperson for Bankman-Fried declined to comment. McHenry’s office was not immediately available for comment.

(Reporting by David Morgan; Additional reporting by Chris Prentice; Editing by Megan Davies and Daniel Wallis)

(Reuters) – U.S. Senators Elizabeth Warren and Tina Smith are demanding an accounting from the Federal Reserve and other U.S. financial regulators of banks’ cryptocurrency activity and ties to the industry following the implosion of crypto exchange FTX.

“While the banking system has so far been relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware,” the lawmakers wrote to the chiefs of the Fed, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency in letters dated Wednesday and released by Warren’s office on Thursday.

“We write to express concern … and to inquire about how your agency assesses the risks to banks and the banking system associated with those relationships,” wrote the senators, both Democrats on the Senate Banking Committee.

The letters asked for details on oversight of banks’ cryptocurrency trading and loans to crypto firms, and asked if regulators plan to conduct a review of crypto firms’ relationships with banks. They gave regulators two weeks to respond to their requests.

Lawmakers have launched inquiries into the cryptocurrency industry following the collapse of Bahamas-based FTX, which filed for bankruptcy last month after the disappearance of at least $1 billion of customer funds.

(Reporting by Ann Saphir; editing by Jonathan Oatis)

By Amanda Cooper

LONDON (Reuters) – The dollar edged up on Thursday, supported by a push higher in U.S. Treasury yields, as investors weighed the outlook for Federal Reserve policy against the chances that high interest rates could lead to a recession.

Next week brings a raft of major central bank decisions, including those from the Federal Reserve, the European Central Bank and the Bank of England.

The key question for traders and investors is whether inflation has reached a peak, giving policymakers more scope to deliver smaller interest-rate rises over the coming months.

U.S. monthly consumer inflation is also due next week, one day before the Fed’s policy meeting on Dec. 14, and could be pivotal in setting longer-term expectations for monetary policy.

“U.S. CPI is the one data release that seems to really matter for broader dollar direction at the moment and, until we got those central bank meetings and one key monthly U.S. data release, not a great deal is happening,” RBC currency strategist Adam Cole said.

The dollar was broadly steady against a range of major currencies. The euro was last flat against the greenback at $1.0507, while the pound eased 0.3% to $1.2171.

The yen, which is highly sensitive to shifts in U.S. Treasury yields, fell 0.25% to 136.90, surrendering some of Wednesday’s 0.4% gain.

The yield on the 10-year Treasury has fallen almost continuously since hitting a 15-year high in late October, having shed almost a full percentage point. In fact, it’s unwound around half the rise that took place between August’s four-month lows and October’s peak around 4.34%.

Meanwhile, oil prices have fallen below $80 a barrel for the first time since Russia invaded Ukraine in late February, as concern has mounted about how much a slowing economy will impact global energy demand.

Brent crude futures have dropped to around $78, having almost halved since early March’s 14-year high of $139.13. Gasoline prices at the pump in the United States, which in June hit a record $5.016, according to the American Automobile Association, are now at $3.329, down 0.4% on where they were at this point last year.

With energy prices having receded, market-based expectations for inflation have relaxed as well. The 10-year breakeven inflation spread, which subtracts the yield on an inflation-linked Treasury from that on a nominal 10-year note, is at just 2.27%, having peaked above 3% in April.

These two forces, together with diminishing expectations for the Fed to keep raising interest rates at the same aggressive pace, have knocked 6.2% off the value of the dollar so far this quarter.

This has put the greenback on course for its worst quarterly performance since the third quarter of 2010, when it dropped 8.5%, but for its worst fourth-quarter performance since 2004, according to Refinitiv data.

“The price action continues to highlight that market participants are becoming less concerned over upside inflation risks and more concerned over downside risks to global growth,” Lee Hardman, currency strategist at MUFG, said in a note.

The 10-year yield was last up 5 bps at 3.45%, having neared is lowest in almost three months overnight.

Money markets show there is a 91% chance that the policy-setting Federal Open Market Committee will raise rates by half a point next week, and just a 9% chance there will be another 75 basis point increase. Rates are now seen peaking at just below 5% in May.

Meanwhile, the yuan hovered close to an almost three-month high after China announced another loosening in some of its highly restrictive COVID restrictions.

The U.S. dollar edged 0.1% higher to 6.9670 yuan in offshore trading, clawing back some of its 0.34% decline from Wednesday, when the Chinese government announced a relaxation of some COVID-19 measures that have badly hampered the economy.

(Additional reporting by Kevin Buckland in Tokyo; Editing by Simon Cameron-Moore and Kim Coghill)

By Medha Singh

(Reuters) – Total funding at crypto startups this year is set to exceed investments in 2021, research firm Pitchbook said on Thursday though the pace of capital deployment is slowing as a series of crypto blowups sapped private equity investment appetite.

Crypto projects globally attracted $19.9 billion in venture capital (VC) investments in the first nine months of 2022, 41% higher than a year ago, according to Pitchbook data. In total, last year drew in a record $21.2 billion.

The amount of capital deployed, however, has trended downwards through this year with only $4.0 billion invested in third quarter, representing a 38.3% quarter-over-quarter decline and the lowest amount since second quarter 2021, Pitchbook said.

The collapse of FTX last month was the most shocking in a series of closures of key market players this year including Celsius and Voyager, major tokens terraUSD and Luna that have shaken investment sentiment and wiped out $1.5 trillion in cryptocurrency market capitalization.

“The lack of clear regulation and guidance remains one of the crypto industry’s greatest concerns and limiting factors,” said Robert Le, crypto analyst at PitchBook.

“Mainstream adoption is unlikely to occur until better guardrails in the form of established laws and guidelines are in place.”

A number of FTX backers including Singapore state investor Temasek Holdings, SoftBank Group Corp’s Vision Fund and Sequoia Capital marked down their investment to zero after the crypto exchange filed for bankruptcy.

“This bearish sentiment will continue for all of next year and you’re going to notice that the pace of investment and the amount of capital deployed is going to get lower and lower on concerns over contagion risk,” said Adam Struck, at LA-based venture capital firm Struck Capital.

VCs infused $1.5 billion in the so-called Web3 companies in third quarter, a 44.5% growth sequentially, according to Pitchbook.

Web3 – a term used to describe a potential next phase of the internet – was the only crypto segment that saw an increase in capital invested for the quarter as it is relatively more insulated from the day-to-day price movements of crypto tokens, Pitchbook’s Le said.

(Reporting by Medha Singh in Bengaluru; Editing by Dhanya Ann Thoppil)

(Reuters) – U.S. federal prosecutors are investigating whether FTX’s founder Sam Bankman-Fried manipulated the market for two cryptocurrencies this May that led to their collapse and resulted in the implosion of his own cryptocurrency exchange, the New York Times reported on Wednesday.

The prosecutors are looking into whether Bankman-Fried controlled the prices of two interlinked currencies, TerraUsd and Luna, to benefit the entities he controlled including FTX and Alameda Research, the report said.

The investigation is in its early stages, the newspaper said, adding that it is not clear whether prosecutors have determined any wrongdoing by Bankman-Fried, or when they began looking at the TerraUSD and Luna trades.

A spokesperson for the Manhattan U.S. attorney’s office did not respond immediately to request for comment.

Regulators around the globe, including in the Bahamas where FTX is based and in the United States, are investigating the role of FTX’s top executives including Bankman-Fried in the firm’s stunning collapse, Reuters has previously reported.

The crypto exchange filed for bankruptcy last month after a liquidity crisis that saw at least $1 billion of customer funds vanish.

In recent weeks, U.S. authorities have sought information from investors and potential investors in FTX, according to two sources with knowledge of the requests.

Federal prosecutors in New York are asking for details on any communications such firms have had with the crypto firm and its executives, including Bankman-Fried, the sources said. Bloomberg previously reported the information requests.

FTX and Alameda research did not respond to Reuters request for comments.

(Reporting by Gokul Pisharody in Bengaluru; Editing by Kim Coghill)

(Reuters) – U.S. House of Representatives Financial Services Committee Chair Maxine Waters tweeted on Wednesday that a subpoena of FTX founder Sam Bankman-Fried was “definitely on the table.”

Waters’ tweet was in response to a CNBC report earlier in the day that said she did not plan to subpoena Bankman-Fried to testify before Congress on Dec. 13.

Waters had earlier said on Twitter that it was imperative that the FTX founder testify and that the committee was “willing to schedule continued hearings if there is more information to be shared later.”

(Reporting by Jyoti Narayan in Bengaluru; Editing by Leslie Adler)

By Dietrich Knauth

(Reuters) – A U.S. bankruptcy judge on Wednesday ruled that some customers of crypto lender Celsius Network should receive their deposits back, giving relief to a relatively small group of customers whose deposits were never commingled with other Celsius funds.

U.S. Bankruptcy Judge Martin Glenn is weighing broader questions of who owns crypto assets that were deposited with Celsius.

His ruling Wednesday was limited to customers who had non-interest bearing custody accounts, whose funds were not commingled with other Celsius assets, and whose accounts were too small for Celsius to seek to claw them back to repay other customers, according to Celsius’ official creditors committee.

The creditors committee previously estimated that amount at stake for custody account holders was $50 million.

Judge Glenn has not yet ruled on ownership of Celsius “earn” accounts or “withhold” accounts.

Earn accounts, which paid interest to customers and allowed Celsius to use customer funds to make loans were the default account type at Celsius before regulatory investigations forced it to change course early in 2022.

Those regulatory investigations, which alleged that earn accounts were an unregistered securities offering, caused Celsius to create non-interest bearing custody accounts and withhold accounts.

New Jersey-based Celsius froze withdrawals in June, citing “extreme” market conditions, cutting off access to savings for individual investors. When it filed for Chapter 11 bankruptcy in July, Celsius reported $4.3 billion in assets and $5.5 billion in liabilities, primarily owed to its customers.

(Reporting by Dietrich Knauth; Editing by Lincoln Feast)

By Jody Godoy

(Reuters) – A federal judge in California on Wednesday dismissed a lawsuit against reality TV star Kim Kardashian, boxing legend Floyd Mayweather Jr. and others over their role in promoting a cryptocurrency, saying it was not clear that the investors who sued actually saw the promotions.

The lawsuit filed in January claims EthereumMax executives schemed with celebrity promoters to induce investors to buy the EMax token, driving up its price and allowing them to sell their own tokens at a profit.

U.S. District Judge Michael Fitzgerald in Los Angeles said that the investors may amend and refile their proposed class action.

The decision comes as other celebrity promoters face lawsuits from users of the failed cryptocurrency exchange FTX, whose collapse has deepened an ongoing “crypto winter.”

Sean Masson, an attorney who represents the investors in the EthereumMax case, said they plan to revise their claims to add “a host of additional facts demonstrating defendants’ wrongdoing and liability.”

Michael Rhodes, the lead attorney for Kardashian, said the defense is “pleased with the court’s well-reasoned ruling.”

Attorneys for Mayweather did not immediately respond to a request for comment. Also named in the lawsuit was former National Basketball Association star Paul Pierce.

Kardashian promoted EthereumMax in a June 2021 post on Instagram, and Mayweather wore the company’s logo on his boxing trunks during a widely viewed fight, the investors said.

In Wednesday’s ruling, Fitzgerald said that investors had failed to show that the executives and promoters schemed to mislead investors, rather than acting in their own self-interest.

The investors’ fraud claims failed because they had not stated whether or when they saw the promotions, the judge wrote.

While the investors may revise those claims, Fitzgerald permanently dismissed their claim under California’s consumer protection law, which he said applies to tangible goods and services, not “intangible goods” such as cryptocurrency.

Kardashian agreed in October to pay the SEC $1.26 million to settle claims that she failed to disclose she was paid to promote EthereumMax tokens. She did not admit wrongdoing.

The case is In Re: Ethereummax Investor Litigation, No. 22-00163.

(Reporting by Jody Godoy in New York; Editing by Noeleen Walder and Matthew Lewis)

LONDON (Reuters) – U.S. crypto firm Genesis is working to preserve client assets and strengthen liquidity, it said in a letter to clients on Wednesday, adding that it would take “weeks rather than days” to form a plan.

Genesis’ lending arm, Genesis Global Capital, froze customer withdrawals on Nov. 16, citing “unprecedented market dislocation” following the collapse of major crypto exchange FTX.

Genesis, owned by venture capital firm Digital Currency Group (DCG), said last week it was seeking to avoid a bankruptcy filing.

“Working in consultation with highly experienced advisors and in close collaboration with our owner, DCG, we are evaluating the most effective path to preserve client assets, strengthen our liquidity, and ultimately move our business forward,” Genesis said in the letter.

“We anticipate that it will take additional weeks rather than days for us to arrive at a path forward.”

All other parts of Genesis’ business are “fully operational,” it added.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits.

Genesis had almost $3 billion in total active loans at the end of the third quarter, its website said. Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets.

Genesis and Digital Currency Group owe customers of the Winklevoss twins’ crypto exchange Gemini $900 million, the Financial Times reported on Saturday.

Gemini said in a statement on its website on Nov. 16 that it had partnered with Genesis for its yield-generating “Earn” program, leaving customers of this product unable to redeem their funds when Genesis froze withdrawals.

(Reporting by Elizabeth Howcroft; Editing by Tom Wilson and Richard Chang)

By Tom Hals and Dietrich Knauth

WILMINGTON, Del. (Reuters) – A U.S. judge this week is considering for the first time the question of who owns bitcoin and other tokens in frozen accounts at a bankrupt digital asset exchange in a case that could shape customer protections in the cryptocurrency industry.

U.S. Bankruptcy Judge Martin Glenn in New York City will sort through who owns cryptocurrencies held in accounts at the Celsius Network LLC exchange, which suspended withdrawals and then fell into Chapter 11 during this year’s crypto crash.

Glenn’s eventual rulings will help shape the treatment of crypto in accounts that have been frozen at other failed firms such as FTX, Voyager Digital Ltd and BlockFi, which do not have enough funds to repay everyone in full.

If Celsius deposits are determined to belong to customers, users are far more likely to get their assets returned. If the account holdings belong to Celsius, those customers will be at the back of the line for repayment, collecting pennies on the dollar.

Unlike bank deposits or brokerage accounts, which are backed by the U.S. government up to $250,000 and $500,000 respectively, crypto deposits are not insured and digital asset companies are lightly regulated and often operate offshore.

Crypto companies typically offer a variety of accounts and they will likely be treated differently in bankruptcy.

Celsius, for one, has argued that its “earn” accounts, which offer interest to customers, should be treated differently than its “custody” accounts, which provide a place to store cryptocurrency without generating interest. BlockFi, which is at the beginning of its own bankruptcy case, also offers both interest-bearing and custody accounts.

“It can get complicated,” Glenn said during Wednesday’s hearing. “I’m trying as expeditiously as possible to get through as many issues as I can.”

‘WORSE THAN BANKS’

Courts will also have to look beyond the user agreements and examine how crypto companies actually handled the deposits, according to bankruptcy specialists.

“That’s going to be a really thorny issue for the court, because there’s the representation of what should have been happening versus what is actually happening on the ground,” said Yesha Yadav, an associate dean and law professor at Vanderbilt University.

FTX customers have sought comfort in the fact that their terms of service say they own the crypto in their account. FTX founder Sam Bankman-Fried pushed back on that idea when asked about it last week during a New York Times DealBook interview.

“So there is that piece from the terms of service,” Bankman-Fried said when asked if the agreement prevented FTX from transferring customers’ funds to its trading unit Alameda Research. “But there were a number of other parts of the terms of service, a number of other parts of the platform on top of that.”

If a company was using the deposited crypto to make loans or comingled it with other clients’ holdings, as was the case with Celsius’ high-yield accounts, it would be evidence the firm owned the crypto the same way a traditional bank owns its deposits.

Celsius wants Glenn to declare the crypto in “custody” accounts as client property. It wants the judge to find the holdings in the high-yield “earn” accounts are property of Celsius, which plans to use some tokens to pay for the lawyers and advisers to plot a way out of Chapter 11 bankruptcy.

“I felt like I was stabbed in the back, because numerous times (Celsius founder Alex) Mashinsky said, ‘banks are not your friends,'” Daniel Frishberg, an “earn” customer, told Reuters before Wednesday’s hearing. “In fact, they were much worse than the banks.”

A ruling on crypto ownership may not be the end of the road for customers, however. Even if the customers clearly own the assets, bankrupt crypto companies won’t have enough funds to pay everyone back, and determining who gets paid in what amounts may take months or years.

“The bankruptcy courts are now the vanguard of rulemaking in relation to crypto, because it’s going to be deciding fundamental issues in relation to asset allocation and client custody,” Yadav said. “This is going to have enormous influence on crypto companies and crypto customer behavior.”

(Reporting by Tom Hals in Wilmington, Del., and Dietrich Knauth in New York; Editing by Amy Stevens, Noeleen Walder and Matthew Lewis)

By Divya Rajagopal

TORONTO (Reuters) – Canada’s biggest pension fund, CPP Investments, has ended its effort to study investment opportunities in the volatile crypto market, two people familiar with the matter told Reuters.

The reasons behind CPPI’s abandonment of crypto research were not immediately clear. CPPI declined to comment but said it has made no direct investments in crypto. It referred to previous comments on cryptocurrency by its CEO, John Graham, in which he sounded a note of caution.

CPPI’s Alpha Generation Lab, which examines emerging investment trends, had formed a three-member team in early 2021 to research crypto currencies and blockchain-related businesses, with a view to taking potential exposure, the people added.

But CPPI abandoned the pursuit this year and redeployed the team to other areas, the sources said.

CPPI’s move also comes as two of Canada’s largest pension funds have written off their investments after the collapse of crypto exchange FTX and crypto lender Celsius this year.

Earlier this year CPPI CEO Graham said that the pension plan, which manages C$529 billion ($388 billion) for nearly 20 million Canadians, did not want to invest in crypto merely because of the fear of missing out.

“You want to really think about what the underlying intrinsic value is of some of these assets and build your portfolio accordingly,” Graham said in a June speech. “So I’d say crypto is something we continue to look at and try to understand, but we just haven’t really invested in it.”

It was unclear when CPPI dropped its plan. One of the sources said the team was actively assessing investment opportunities as late as July this year, but the second source said the team ended its work earlier than that.

The details of CPPI’s pursuit of cryptocurrency investment and its decision to end it have not been previously reported.

The sources declined to be identified because the information was not public.

Canadian pension funds’ exposure to crypto sector has come under scrutiny following the FTX debacle. While Canadian pension funds are not prohibited from buying cryptocurrencies, they are known for their risk-averse investing strategies to generate steady returns for pensioners.

While CPPI has avoided crypto investments, some of its peers have been caught up in the sector’s mayhem this year. The Ontario Teachers Pension Fund (OTPP), which oversees about C$242 billion in assets, has written off its investments worth C$95 million in FTX. OTPP said it was “disappointed” with its investment in FTX.

Earlier this year, Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec (CDPQ), said it was writing off its investment of C$150 million in bankrupt crypto lending firm Celsius. CDPQ has initiated legal proceedings against Celsius in bankruptcy court.

The Ontario Municipal Employees Retirement System (OMERS), which manages C$121 billion, made three allocations to crypto-linked businesses through its OMERS Ventures business between 2012 and 2018 but exited all investments in 2020.

Another Canadian pension fund, OP Trust, told Reuters that it has investments in the digital asset fund space that is managed externally. The investment is in the underlying crypto technology, it said.

($1 = 1.3650 Canadian dollars)

(Reporting by Divya Rajagopal in Toronto; Additional reporting by Maiya Keidan; Editing by Denny Thomas and Matthew Lewis)

By Huw Jones

LONDON (Reuters) – Lessons will be applied swiftly from the collapse of crypto exchange FTX that left 80,000 UK investors nursing losses even though the platform was not registered in Britain, the UK Financial Conduct Authority said on Wednesday.

Matthew Long, the FCA’s first director in the newly created digital assets unit, said FTX combined issuance of tokens, trading, wholesale market activity and safeguarding of funds in one place.

“In our view, extremely dangerous because you can have interaction between each of those things, which in other regulated areas would be separate legal entities or have ‘sterile’ corridors so they couldn’t effectively influence each other,” Long told parliament’s Treasury Select Committee.

“We need a regulation that deals with those sterile corridors so we don’t see what we have already seen.”

The FCA along with other global regulators at IOSCO, an umbrella group for securities watchdogs, are looking at how those activities could separately be covered by best practice rules, with recommendations to members in mid-2023, Long said.

Long said regulators’ response to the FTX debacle would be “pacy”.

IOSCO chair Jean-Paul Servais told Reuters last month that past experience with regulating firms like credit rating agencies would be used to deal with conflicts of interest at crypto “conglomerates” like FTX.

Britain is approving a financial services and markets bill that will give the FCA powers to regulate the crypto market, with the finance ministry due to issue a public consultation perhaps as soon as Friday on “world leading” rules.

The European Union is also finalising its own crypto regime.

Currently crypto dealings are unregulated in Britain, with firms only needing to show they can comply with anti-money laundering rules.

“In terms of dark money, there is money laundering that is running through crypto,” Long said.

Sarah Prichard, the FCA’s executive director for markets, told the committee that crypto promotions would be regulated like other “high risk” investments, labelled with a warning that investors should not invest unless willing to lose their money.

(Reporting by Huw Jones; Editing by Hugh Lawson)

(Reuters) – Cryptocurrency exchange Coinbase Global Inc revenue is set to reduce to half this year, Bloomberg News reported, citing an interview with chief executive officer Brian Armstrong.

Coinbase did not immediately respond to a Reuters request for comment.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Krishna Chandra Eluri)

WASHINGTON (Reuters) – U.S. Securities and Exchange Commission Chair Gary Gensler said that companies that help facilitate transactions in the cryptocurrency market should come into compliance with law.

The SEC has enough authority but could use more resources, Gensler told Yahoo Finance in an interview on Tuesday. He labeled the crypto intermediaries as “crypto casinos.”

The SEC chair added that next Wednesday, the agency will take up recommendations from agency staff on equity market structure.

(Reporting by Kanishka Singh in Washington)

FRANKFURT (Reuters) – Crypto assets are here to stay so their regulation is urgently needed to protect investors and the stability of the global financial landscape, European Central Bank board member Fabio Panetta said on Wednesday.

Crypto investors suffered a series of blows this year from the collapse of the FTX exchange, to the crash of stablecoin TerraUSD and the decline of Bitcoin.

“This is not just a bubble that is bursting. It is like froth: multiple bubbles are bursting one after another,” Panetta said in a speech in London. “Investors’ fear of missing out seems to have morphed into a fear of not getting out.”

Unbacked crypto assets are a form of financial gambling without any socially or economically useful function, so the task is to thwart criminal activity, protect unassuming investors and save a financial system that may become increasingly intertwined with crypto assets, Panetta said.

Graphic: Market capitalisation of crypto assets https://fingfx.thomsonreuters.com/gfx/mkt/byvrljzkave/Pasted%20image%201670422836032.png

Even stablecoins, which are supposed to keep their value through ties to a pool of assets, are stable in name only, Panetta said.

“But these flaws alone are unlikely to spell the end of cryptos,” Panetta said. “Gambling is perhaps the second oldest profession in the world.”

The links between the crypto market and the financial system could strengthen, especially if major tech companies enter the sector, meaning regulation is urgently required, Panetta said.

Regulatory efforts should be directed primarily at preventing the use of crypto-assets to circumvent financial regulation and in shielding the mainstream financial system from crypto risks, Panetta said.

(Reporting by Balazs Koranyi; editing by Barbara Lewis)