On 14 March 2018, the digital currency exchange, Coinbase, announced in its blog that it had received an Electronic-Money (E-Money) authorisation from the UK regulator, the Financial Conduct Authority (FCA). Coinbase is a San Francisco-based digital currency exchange which offers users the ability to trade Bitcoin, Bitcoin Cash, Ethereum and Litecoin. You may view the announcement here.
The authorisation of Coinbase by the FCA is highly significant as it makes Coinbase the first cryptocurrency exchange to be authorised as an E-Money Institution. It marks a significant development in the interaction between the cryptocurrency sector and traditional financial regulation.
Safe as a bank?
The authorisation will allow Coinbase to issue e-money and provide payment services across the EU. In the announcement, Zeeshan Feroz, CEO of Coinbase, noted that Coinbase is already complying with the safeguarding and high operational standards expected of regulated financial institutions. Mr Feroz uses the example of the segregation of client funds, noting that Coinbase separates all customer fiat currency balances in separate accounts from Coinbase’s own funds.
Concerns about the security of digital currency exchanges have been fuelled by a number of recent hacking incidents, most recently where nearly $US500 million in cryptocurrency assets were stolen from another cryptocurrency exchange, called Coincheck Inc.
Coinbase collaboration with Barclays
In the same announcement, Mr Feroz also noted that Coinbase will join the Faster Payments Scheme (FPS) via partnership with Barclays PLC. FPS is currently only available to a number of major UK banks, but access will soon be extended to non-bank payment service providers.
In a speech on 2 March 2018, Mark Carney, the Governor of the Bank of England, said that the first non-bank entities are expected to join the scheme ‘this spring’. Coinbase will access the FPS as an indirect member by virtue of its newly established banking relationship with Barclays. This first formal agreement between a virtual currency exchange and a UK bank will enable Coinbase’s reported 12 million registered users to be able to use FPS to simplify and speed up transactions.
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