Did you know that the Library of Congress maintains a survey of cryptocurrency regulation around the world? This topic contains to remain a hot one as businesses try to maintain compliance with the evolving policy, and while the public tries to find reassurance that the cryptocurrency industry is a safe space.
With careerlong involvement in financial regulation, it’s no surprise that Joe Ciccolo founded BitAML, a crypto compliance advisory firm. He recently sat down for a quick chat with BitIRA on the current state of regulation, and to share what he thinks the next top priorities are. With his extensive knowledge and experience, Joe is able to offer perspective for businesses and individuals alike.
BitIRA: How did you get involved in financial regulation?
Joe: My background is in traditional bank clients. Before getting into the crypto space, I spent about a decade working very different roles in compliance within financial services across the risk management spectrum. So, I came in through compliance, which is pretty interesting—most people getting involved in crypto don’t come in through the compliance door.
While I was in banking, I had a lot of entrepreneurial opportunities: helping to build compliance programs, building teams, and working hands-on with a lot of really talented people. But unfortunately, that that entrepreneurial itch wasn’t getting scratched. I was looking around for what was the future of financial services and banking. There were some FinTech projects that were pretty interesting. And around that time, cryptocurrency started to get a little bit more attention; this was, let’s say, around 2014.
I started to research a little about cryptocurrency. It had made some headlines; some good, most bad, but I knew there was something very interesting about it. I wanted to do a little bit more digging. I went down the “rabbit hole” as we say in the industry. I began to consume lots of content and really look into it.
I was able to, in my mind, put aside all of the negative feedback and naysayers, and really focus on looking at the technology and saying, well, does it work? Well, okay, it seems to work since people are using it. Can I explain how it works? No, but I also can’t explain how email works, or how my cell phone works, but I still know that they work… And so that gave me the confidence to continue pursuing this and ultimately, find my way into the crypto space where I’ve been for almost five years now.
BitIRA: What are the most pressing fires that you think need to be put out when it comes to crypto regulation?
Joe: I think from the regulator’s perspective, they really need to address with a bit more specificity exactly what cryptocurrencies constitute securities. I think that space that is continuing to suffer from a lack of information and a lot of speculation. The decision-making from the SEC seems to be more in the in the area of enforcement action, which is good because there are certain players in the space that don’t belong there and are clearly engaging in in unlawful activities related to securities. Unfortunately, in that same head, there are a lot of crypto exchanges and other platforms that are not confident they can list certain cryptocurrencies without running afoul of those regulations. Unfortunately, that’s setting us back in a global marketplace
I think on the money transmitter side with FinCEN, I think they’ve been pretty vocal on what constitutes money transmission; they’ve really narrowed down any exceptions to that rule. I think that side is pretty, pretty well addressed, but I would focus more on the securities.
From the entrepreneurs’ standpoint or the crypto companies’, I think what won’t suffice is just continuing to stay compliant and not just sort of holding on to an AML program or putting a few controls in place and calling it a day. Instead, they need to really stay on top of their game consistently, so that they’re constantly challenging themselves to get better at compliance, and they also need to surround themselves with great resources while continuing to engage regulators. I think that’s one of the thing that the crypto industry has done a lot better over the past several years: actually reaching out and talking to regulators, and having that communication. If we were to mention that maybe three or four years ago, we’d be tarred and feathered. Talking to regulators was not considered anything other than taboo.
Fast forward to today, that’s really how things get done: having these direct conversations and finding out what needs to be addressed and where one stands in terms of regulation. I think that’s a good position to be in.
As we like to remind our clients and our friends in the industry, if you look around at the most successful companies in the crypto space, one of the things they have in common—among other attributes—is they have a great dialogue with regulators, and by all outward appearances have really knocked it out of the park when it comes to clients.
BitIRA: What would you say are currently the biggest security vulnerabilities the average consumer or even business needs to look out for within the crypto space?
Joe: I think cybersecurity is going to be and continues to be a huge issue. Within the crypto space, there is one large exchange that recently thwarted a very sophisticated cybersecurity attack that happened from many different angles. It was a very well-coordinated attack, thankfully they were able to defend themselves from that.
This should hopefully serve as a reminder to others to maintain a very strong cybersecurity program, and make sure they have all-hands-on-deck involved in process. It just takes one small vulnerability. I think from a consumer standpoint, there’s no FDIC insurance, and there’s no assurances that the crypto that you have on your platform is going to be there tomorrow. And so we’ve seen cases—mostly outside of the US—but we’ve seen several cases where exchanges will set up shop, they’ll do amazing customer service, follow through on transactions and cryptocurrency, and then suddenly just ghost and disappear with people’s funds.
The regulation the US is such that it makes that very difficult to do; it’s certainly very difficult to run and hide. And certainly, it creates a very difficult space to be in, and so I’m more worried about the crypto exchanges and others that maybe get in over their head or don’t put in the requisite controls. And that over time, those systems are tested by bad guys so that ultimately that vulnerability is there.
I think that has a lot to do with the mainstream not necessarily getting into crypto, because they don’t feel as comfortable engaging with these platforms as maybe they do their online community bank.
BitIRA: What problems or problems would you like to see the crypto industry tackle next?
Joe: I think the crypto industry really needs to tackle and close the education gap, and I really think they need to get better at PR. Those two things go hand in hand. And that has to do with appealing to a broader audience and really bringing in that mainstream.
I think that in the crypto industry, it’s very communal. There are lots of folks that are really helping each other out. And sometimes it appears as though we’re preaching to the choir. As we want to turn the corner and really get that average consumer in the fintech and financial services space to engage the crypto space, we really to demystify a lot of what’s going on in crypto. We really need to make it easier for people to understand and to break it down. We need to close with education gap, but also be on our toes when it comes to PR opportunities.
I think that there’s a lack of coordination with the within the industry. Typically, that’s because people are just so busy building or growing a company, or staying on top of the news in crypto. it’s very difficult to have a coordinated, concise message, whereas the banking industry has, for years had industry groups and lobbyists and PR budgets. And in the crypto space, we’re fond of saying we have no PR budget, because it’s an innovation. It’s not a system. And so that’s certainly something that I think that the industry could work on: having more messaging.
We’re starting to see some more small, volunteer-based industry groups getting together and working on having some consolidated responses to different situations. I hope that that gets more formal. It’s something that can really help us close this knowledge gap, and really welcome folks into the crypto space. I’m sure they’ll find it as welcoming as I have the past five years.
