This article is co-authored by Susan O’Neill of SuLu Solutions and Peter Oakes of Fintech Ireland*.
17 July 2023 - find New Version of this Registered Virtual Asset Service Providers Map, V 2.0 HERE
[Updated on 12 April 2023 to add Kraken to the article which appear on the VASP register today]
17 July 2023 - find New Version of this Registered Virtual Asset Service Providers Map, V 2.0 HERE
[Updated on 12 April 2023 to add Kraken to the article which appear on the VASP register today]
Ireland has a small number of registered Virtual Asset Service Providers (VASPs). In Ireland it is a criminal offence to carry on the business of a VASP in the absence of registration from the Central Bank of Ireland (CBI). VASPs came within the scope of Ireland’s Anti-Money Laundering (AML)/Countering Financing of Terrorism (CFT) legislation in April 2021. As per the CBI Anti-Money Laundering Bulletin issued on 8 July 2022 (CBI AML Bulletin), “In the intervening period, a significant number of firms have applied to the Central Bank for registration.”
If a significant number of firms have applied to be registered as VASPs – the question arises as to: “Why, 2 years later, Ireland has issued only six (6) VASPs?” This begs further questions: Is Ireland behind the curve compared to its international peers? Are the firms applying in Ireland sufficiently resourced to become VASPs? How do we, more specifically, compare to our neighbours in the UK?
If a significant number of firms have applied to be registered as VASPs – the question arises as to: “Why, 2 years later, Ireland has issued only six (6) VASPs?” This begs further questions: Is Ireland behind the curve compared to its international peers? Are the firms applying in Ireland sufficiently resourced to become VASPs? How do we, more specifically, compare to our neighbours in the UK?
If a significant number of firms have applied to be registered as VASPs – the question arises as to: “Why, 2 years later, Ireland has issued only six (6) VASPs?”
Of the six (6) registered VASPs –two of the registrations are held by Coinbase. The UK has 41 cryptoasset firms registered with the Financial Conduct Authority (FCA). The FCA also have a list of 82 unregistered cryptoasset businesses (as at 31 March 2023), down from close to 250 during 2022, but perhaps this is a topic that deserves an article all of its own!
The UK has 41 cryptoasset firms registered with the Financial Conduct Authority
The UK’s population is 13 times larger than that of Ireland (UK 67.33mn versus Ireland 5.033mn according to World Bank, Eurostat 2021 figures). Accordingly, the UK has one registered cryptoasset firm for every 1.64mn persons. Whereas for Ireland it is one crypto firm for every 838,833 persons. By that comparison, Ireland has more crypto firms per head of population than the UK. Based on those numbers Ireland is not only holding its own vis-à-vis the UK, it is exceeding it by a large margin. If Ireland registered say another 9 VASPs (to get it to 15 VASPs) it would have one cryptoasset firm for every 335,500 persons. Is this something that policymakers, the government and the CBI take into account as part of their respective cryptoasset strategies?
Ireland is not only holding its own vis-à-vis the UK, it is exceeding it by a large margin.
The CBI AML Bulletin noted the following “In its assessments of applications for registration as a VASP, the Central Bank has identified significant and widespread weaknesses in the proposed risk and control frameworks of the vast majority of applicants. These weaknesses are such that the Central Bank is not satisfied that firms will have the necessary and appropriate controls in place to effectively manage and mitigate the ML/TF risk to the firm, the sector and society.”
Widespread weaknesses in “the vast majority of applicants” does not inspire confidence in the future of VASP applicants in Ireland. However, it is relevant to note that the FCA too has, as recently as 22 March 2023, criticised the quality of cryptoasset applications received by it, particular in areas relating to business plans, comprehensive description of products and services, risk assessment, risk management, policies, systems & controls, Transaction monitoring and blockchain analysis coverage, Group structure and reliance on group policies and procedures, Outsourcing, Training, Suspicious Activity Reporting and regulatory disclosures. The FCA reminded crypto asset firms of its concerns on 5 April 2023 (see below).
Widespread weaknesses in “the vast majority of applicants” does not inspire confidence in the future of VASP applicants in Ireland. However, it is relevant to note that the FCA too has, as recently as 22 March 2023, criticised the quality of cryptoasset applications received by it, particular in areas relating to business plans, comprehensive description of products and services, risk assessment, risk management, policies, systems & controls, Transaction monitoring and blockchain analysis coverage, Group structure and reliance on group policies and procedures, Outsourcing, Training, Suspicious Activity Reporting and regulatory disclosures. The FCA reminded crypto asset firms of its concerns on 5 April 2023 (see below).
So, what can be done to support applicants, and thereby improve applications? There is no doubt that the crypto industry is going through the growing pains of a market that needs regulation, but regulation needs to put the guard rails in place to support its users, while also ensuring it does not stifle innovation. There is a very real opportunity here to ensure that Ireland is at the forefront of positive regulatory changes – Ireland could become a hub for the crypto ecosystem. There are already a number of very large players based in Dublin. In the same breath, the cryptoasset firms and VASPs referred to in this article are themselves not ‘regulated’ but are merely registered for the purposes of anti-money laundering and terrorist financing laws, i.e. VASPs and cryptoasset firms in Ireland and the UK are not authorised. However some such firms have a separate authorisation, for example Archax, which is both a registered cryptoasset firm and a UK authorised investment services firm and multi-lateral trading facility, subject to extensive conduct and prudential rule books. As the crypto industry continues to mature, expect to see numerous ‘digital asset’ firms seek to differentiate and distance themselves from the speculative trading and exchange-driven cryptoasset firms which are falling under evermore regulatory scrutiny such as Binance, Coinbase and Kraken and the failed FTX and Genesis Trading (both of which have filed for bankruptcy protection in the US).
There is no doubt that the crypto industry is going through the growing pains of a market that needs regulation, but regulation needs to put the guard rails in place to support its users
In order to address some of the concerns noted above, the European Union’s trailblazing Markets in Crypto-Assets (MiCA) Regulation is set to come into effect across all member states in 2024, but will it be enough? Dubai’s Virtual Asset Regulatory Authority is the world’s first independent regulator for virtual assets. Dubai is fast becoming a hub for the crypto ecosystem. Could Ireland benefit from a similar initiative? This is highly unlikely as Ireland traditionally follows the EU’s lead on new financial services regulations and there has been nothing issued by the Department of Finance to suggest that this time is different. In April 2022 the UK Government announced its plans to make the UK “a global cryptoasset technology hub”. The UK government intends to bring stablecoins into the regulatory perimeter and has launched a consultation on the country’s proposed central bank digital currency or ‘digital pound’ as it is called. The UK also caught many in the industry unawares when on 31 January 2023, without warning, it published a consultation on the Future financial services regulatory regime for cryptoassets.
Who are the Super Six of Irish Crypto?
So, who are the companies that have managed to obtain the elusive Irish VASP registration and what services are they registered to provide?
The first registered VASP in Ireland was Gemini Intergalactic Europe Limited, registered on 19 July 2022 under its then name Gemini Digital Assets Limited. Next up was Zodia Custody Ireland Limited, registered on 29 July 2022, followed by both Coinbase Custody International Limited and Coinbase Europe Limited on 20 December 2022. Paysafe Payment Solutions Limited joined these with a registration date of 19 January 2023. The most recent VASP to appear on the CBI’s register is Payward Europe Solutions Limited (aka Kraken) whose registration appeared on 11 April 2023.
What services can VASPs offer?
The services these VASPs are registered to provide is summarised in the table below.
In recent months, many similarities have been drawn between the current crypto bear market and the dot com crash. Many wrote off the collapse of US-based Silvergate Bank and Silicon Valley Bank as being completely different from previous financial crises. However the failure of Credit Suisse - at one point in history the eighth-biggest publicly owned bank by market capitalisation - is making people wonder whether we are seeing the start of a financial crisis like that of 2008. Increased regulatory scrutiny in the US continues to put pressure on the entire crypto market, regulators recently closed Signature Bank. Signature Bank and Silvergate Bank were widely used by crypto companies. With so much uncertainty there has never been a greater need for carefully considered regulation that will give crypto companies (and their banks) the clarity they need to operate in a compliant regulatory environment. There are many uphill battles ahead for the crypto ecosystem, only the strongest crypto firms will emerge successfully from this bear market. It will be interesting to see which VASP will appear next on the CBI’s register- watch this space!
The Central Bank of Ireland’s Governor’s recent comments on crypto – 25 January 2023
There was widespread reporting in Irish and international media about comments made by Gabriel Makhlouf, the Governor of the Central Bank of Ireland during his appearance before a committee of Dail Eireann (lower house) in the Oireachtas (Irish Parliament) earlier this year. Reuters reported that Mr Makhlouf urged lawmakers on to ban the advertising of crypto assets targeted at young adults and likened crypto not linked to any underlying assets to a Ponzi scheme saying “Unbacked crypto is essentially a Ponzi scheme... People who put their money into unbacked crypo, and most of the significant stock of crypto out there is unbacked, they are essentially gambling.” Coindesk headlined with “the Governor Gabriel Makhlouf said crypto has ‘no social value whatsoever’”. Whereas Bloomberg wrote “Makhlouf ‘Very Concerned’ About Crypto”.
- I would be grateful if customers could be warned in a very effective way as to the blatant risks of getting involved in crypto currencies in stark red letters: Governor Gabriel Makhlouf
What did Governor Makhlouf actually say on 25 January this year? You can read his comments before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach here, where ‘crypto’ received 50 mentions during the exchange with members of the Oireachtas, including:
- My views on crypto have developed. It is important to be clear because we all use the word "crypto" to mean certain things but there is a spectrum of things under that heading. At one end is what I would call unbacked crypto, which is crypto that has no link to any underlying assets and has no anchor to provide stability of value. It asserts that it is money but it is not a unit of account. It does not appear to be a means of exchange and it is certainly not a store of value. I am delighted the Deputy did not attach the word "currency" to crypto because I think this gives a misleading view of it. I only use the word "crypto". That unbacked currency has no social value whatsoever. Trying to ban it is probably unrealistic and may have unintended consequences. People who put their money in unbacked crypto, and probably the most significant stock of crypto out there is unbacked, are essentially gambling.
- As you move along the spectrum, you get into backed crypto, which also goes under the name of stablecoin, but which has not proved to be particularly stable at the moment.
- New EU legislation is coming in this year. The Markets in Crypto-Assets, MiCA, regulation will give us regulatory powers but it will not deal with unbacked crypto. It will deal with stablecoin.
- I would be grateful if customers could be warned in a very effective way as to the blatant risks of getting involved in crypto currencies in stark red letters.
- To be clear, we are not supportive of crypto, particularly the unbacked crypto … Regulators across the world are concerned about the whole crypto universe but unbacked crypto in particular. I am happy to repeat that I consider unbacked crypto to be, in essence, a Ponzi scheme.
- The risks, especially with unbacked crypto right now, arise primarily with retail customers. We are not ignoring the fact that financial stability risks could arise in the future.
You can make up your own mind on Governor Makhlouf thinking on crypto, and by extension the CBI’s position on same.
The UK FCA’s recent communication to overseas crypto industry – 5 April 2023
On 5 April 2023, the UK FCA issued a letter to cryptoasset firms that market to UK consumers, including those based overseas to be aware that they will need to comply with the new UK financial promotions regime. Set out in bold typeface the FCA warns the crypto industry that “The new UK financial promotions regime will apply to all firms making financial promotions of qualifying cryptoassets to UK consumers regardless of whether the firm is based overseas.”. The letter issued by the FCA’s Val Smith (Head of Payments & Digital Assets, Authorisations) also reminded readers that financial promotions not falling under one of four permitted routes is a criminal offence punishable by up to 2 years imprisonment and/or a fine. In the letter, the FCA reminded cryptoasset applicants that prior to submitting a registration application, they must ensure that they have provided all of the information requested in the application form. The FCA also informed that in the two weeks following the 5 April letter, it will send cryptoasset firms a short on-line survey with questions about these firms’ UK businesses and their plans in response to the UK’s new financial promotions regime. It looks like it will remain a busy time for cryptoasset and virtual asset services firms on the continent of Europe for the rest of 2023.
Enjoyed the article? Then please reach out to the Authors at their contact details below.
About the Authors:
Susan O’Neill – CEO and Co-Founder of SuLu Solutions. Susan is a qualified accountant who has a wealth of expertise having held several senior management positions. SuLu solutions specialise in providing Fintechs with innovative digital asset strategy solutions that can help them stay ahead of the curve. Email [email protected]. Susan is on the Fintech Ireland Advisory Council.
Peter Oakes – Founder of Fintech Ireland and Fintech UK. Peter is a board director of regulated MiFID, Emoney and Payments companies, and is an advisor to fintech and digital asset firms through international law firm Armstrong Teasdale and his specialist advisory business, CompliReg. Email [email protected]
About the Authors:
Susan O’Neill – CEO and Co-Founder of SuLu Solutions. Susan is a qualified accountant who has a wealth of expertise having held several senior management positions. SuLu solutions specialise in providing Fintechs with innovative digital asset strategy solutions that can help them stay ahead of the curve. Email [email protected]. Susan is on the Fintech Ireland Advisory Council.
Peter Oakes – Founder of Fintech Ireland and Fintech UK. Peter is a board director of regulated MiFID, Emoney and Payments companies, and is an advisor to fintech and digital asset firms through international law firm Armstrong Teasdale and his specialist advisory business, CompliReg. Email [email protected]
