- Disruptive Technologies -
Friday, September 3, 2021
By Jeffrey Kutler
The price of bitcoin can be wildly volatile. Cryptocurrency exchanges have been hacked and suffered outages. Some of those organizations hopscotch around the world to minimize regulatory oversight; the biggest of them, Binance, faces customer legal claims, and the U.K. Financial Conduct Authority has deemed it “not capable” of being supervised.
Yet the $2 trillion crypto market powers through its operational and reputational challenges as more and more traders and investors jump in. Regulatory frameworks and institutional-grade ecosystems are taking shape. Between July and August, total assets under management in digital-asset exchange and over-the-counter products rose 57.3%, to $54.8 billion, according to CryptoCompare.
Also resilient is the ongoing migration of talent between the incumbent and upstart financial industry sectors – even though two of the highest-profile executive moves this year, heralded as signs of the crypto market’s legitimacy and maturity, quickly fizzled.
Brian Brooks, a top U.S. banking regulator as acting head of the Office of the Comptroller of the Currency, and Brett Redfearn, ex-director of the Securities and Exchange Commission’s Trading and Markets Division, led this year’s wave (see For Ex-Regulators, the Door Revolves Toward Tech) but stayed only a few months in their new jobs. In their wakes, however, the hiring beat goes on.
Brooks, acting Comptroller of the Currency until January, became CEO on May 1 of Binance.US, which has been described as an arm’s-length, brand-sharing partner of the global exchange giant that is entangled in regulatory probes in several jurisdictions. Brooks resigned in August, only citing “differences over strategic direction.” It was reported that a venture capital deal he was working on, to put Binance.US on a more independent footing, fell through.
A cryptocurrency enthusiast who before joining the Office of the Comptroller of the Currency (OCC) was chief legal officer of now publicly-listed Coinbase Global, Brooks in March was named a director of financial data technology company Spring Labs.
Sensitive to perceptions, founder and global CEO Changpeng “CZ” Zhao has been offering assurances that the company is on a compliance “journey” and is committed to “protect users’ interests,” and filling other posts accordingly: Richard Teng, formerly head of the Abu Dhabi Global Market regulatory authority and Singapore Exchange’s chief regulatory officer, became CEO of Binance Singapore; and Greg Monahan, a veteran U.S. Treasury financial crime investigator, was named global money laundering reporting officer, replacing Karen Leong, now director of compliance. For Australia CEO, Binance recruited Leigh Travers, chief executive of DigitalX, the country’s first publicly traded blockchain company by way of its 2014 reverse takeover of Macro Energy Ltd.
Said Teng: “We are witnessing rapid mainstream adoption of the blockchain and crypto technology, leading to the need for greater understanding and appreciation amongst individuals, institutions and governments. We seek to work closely with industry leaders and policymakers to enhance understanding of this fast-growing industry and support its sustainable growth.”
Binance pointed out that it “has grown its international compliance team and advisory board by 500% since 2020,” with notable appointments including Jonathan Farnell as director of compliance in Europe, former Financial Action Task Force (FATF) executives Rick McDonell and Josée Nadeau as compliance and regulatory advisers, and former U.S. Senator Max Baucus as policy and government relations adviser.
New Coinbase Faces
Redfearn, after three years with the SEC and 13 before that in trading-related roles at JPMorgan Chase & Co., resigned in July as vice president of product, capital markets at Coinbase, the biggest U.S. cryptocurrency exchange. The only public statement was one from Coinbase confirming Redfearn’s departure, which the Wall Street Journal reported was related to a shift in priorities away from digital-asset securities and toward decentralized finance (DeFi).
On the other side of the personnel ledger, Coinbase in May brought in Goldman Sachs Group global co-head of government affairs and former National Security Council staff member Faryar Shirzad as chief policy officer; and, in August, Kate Rouch as chief marketing officer. With Facebook for more than a decade, Rouch was most recently global head of brand and product marketing for Instagram, WhatsApp, Messenger, Facebook app, public affairs and the Facebook company.
Coinbase, which has some 68 million customers worldwide and has confronted its share of customer service and public relations issues, said Shirzad’s appointment is part of a commitment to “lean into” regulation to “become a trusted platform bringing consumers and institutions alike into the cryptoeconomy.” President and chief operating officer Emilie Choi said that Rouch’s experience “will be invaluable as we continue building our brand, growing our teams and working to bring millions more people into the cryptoeconomy.”
Giancarlo and Company
J. Christopher Giancarlo, a Commodity Futures Trading Commission member from 2015 to 2019 and chairman for the last two years of his tenure, went on to become active in crypto-asset advocacy and business ventures. Jay Clayton, who as his counterpart at the SEC concurrently grappled with the emerging industry’s regulatory conundrums, has taken a similar route.
Giancarlo, senior counsel with Willkie Farr & Gallagher in New York since late 2019, co-leads the Digital Dollar Project, a foundation-funded program supporting a central bank digital currency, and is on the Chamber of Digital Commerce advisory board. Other roles include senior adviser of capital markets technology vendor Baton Systems and director of the Ameribor benchmark originator American Financial Exchange, both deployers of blockchain technology; and director of digital-asset credit and ecosystem player BlockFi, which as of a Series D financing in March was valued at $3 billion.
BlockFi said on September 1 that Giancarlo has left the board, though he remains an adviser to the company and its founder-CEO Zac Prince.
In April, stressing the need “for the financial industry to consider how to adapt and integrate these innovations in a way that best serves investors and the broader economy,” Giancarlo said, “BlockFi's mission to bridge the gap between digital assets and traditional finance provides a model for how to responsibly and thoughtfully manage innovation while also improving the financial well-being of their customers.”
While at the futures regulator, Giancarlo established LabCFTC, an innovation hub whose most recent permanent director, chief innovation officer Melissa Netram, in May became a partner of FS Vector. That fintech advisory and government relations firm was co-founded by former Circle Internet Financial general counsel and chief compliance officer John Beccia and Fenway Summer managing partner Raj Date. Amy Friend, senior deputy comptroller and general counsel of the OCC from 2013 to 2017, and Troy Paredes, SEC commissioner from 2008 to 2013, are among FS Vector’s senior advisers.
Before her year and a half at LabCFTC – while Heath Tarbert, now chief legal officer of Citadel Securities, was the parent agency’s chair – Netram spent nine and a half years in Intuit’s corporate affairs department and was a founding member of the Financial Innovation Now coalition. Earlier, the Catholic University of America law graduate worked for the Financial Services Roundtable (now Bank Policy Institute), McGraw-Hill Companies and, as a Presidential Management Fellow in the Treasury Department, at the Office of Domestic Finance and the OCC.
Ryne Miller, a lawyer who worked at the CFTC from 2010 to 2013 and was legal counsel to then-chairman Gary Gensler, now the SEC chair, recently joined the U.S. unit of fast-rising cryptocurrency exchange company FTX as general counsel. He was with the Sullivan & Cromwell firm for the last eight years.
FTX took a step toward enhanced supervision in the U.S. with an agreement announced August 31 to acquire LedgerX, a CFTC-regulated designated contract market (DCM), swap execution facility (SEF) and derivatives clearing organization (DCO). FTX.US president Brett Harrison, who joined in May from Citadel Securities, made reference to “working with regulators to ensure compliance with the existing derivatives licensing regime. We believe it is incumbent upon the industry to be proactive and to seek out working relationships with regulatory groups like the CFTC to help shape the future of our industry.”
“Infrastructure and Security”
Jay Clayton, the SEC chairman under whom Brett Redfearn served, now affiliated with Sullivan & Cromwell and chairing Apollo Global Management’s board, has deepened his involvement in crypto ventures as an advisory board member of digital-asset connectivity and security platform Fireblocks. In March, Clayton had joined the Academic and Regulatory Advisory Council of One River Digital Asset Management, linked to the One River Asset Management hedge fund.
“The scope of [Fireblocks’] vision to improve the digital asset infrastructure and security is impressive,” Clayton said in an August 19 statement, adding that he shares the company’s “view that digital asset custody requires the same level of service as traditional custody, while also striving for better regulatory outcomes in security, certainty and resiliency. I appreciate the company’s commitment to improving all aspects of the custody and transfer ecosystem and the team’s level of engagement with industry incumbents who have robust legal and compliance infrastructure as well as assisting new entrants in the space.”
Fireblocks in its announcement quoted from a June 6 Wall Street Journal opinion column by Clayton and former Undersecretary of the Treasury Brent McIntosh: “Existing regulatory frameworks provide the tools to address many of the risks of new technologies without stifling their promise. If applying these frameworks reveals outdated requirements, such as a mandate to use paper records or other outmoded technologies, including for governmental functions such as recording mortgages and security interests, then regulators should remove them.”
SEC staff experience and a stint with Uber Technologies proved attractive to Broadridge Financial Solutions in its July appointment of Keir Gumbs as chief legal officer. A well-established provider of financial market infrastructure and governance systems that has become increasingly involved with blockchain and other fintech innovations, Broadridge said Gumbs will oversee the legal, compliance and physical security teams, lead policy and legal advisory efforts, as well as join the Broadridge Foundation board, risk committee, and environmental, social and governance (ESG) committee.
While at the SEC for six years in the early 2000s, Gumbs was counsel to then-commissioner Roel Campos. He was a Covington & Burling partner for 13 years and was most recently on the legal team at Uber during its transition to public ownership.
Surveillance and Compliance
Kathleen Kraninger, director of the Consumer Financial Protection Bureau from 2018 through the end of the Trump administration, has joined crypto risk monitoring and surveillance specialist Solidus Labs as vice president of regulatory affairs. Two months before the July 22 announcement, Solidus completed a $20 million Series A financing with participants including the FTX exchange, a fund affiliated with Fidelity Investments parent FMR, former market regulators J. Christopher Giancarlo and Troy Paredes, and past LabCFTC director Daniel Gorfine.
"Crypto and decentralized finance are not only changing the way we understand financial markets and risk, they're also transforming financial regulation,” commented Solidus Labs founder and chief executive Asaf Meir, formerly of Goldman Sachs. “Kathy’s the right person to lead our strategy in response to demand from regulators, enforcement agencies and legislators for crypto-native risk monitoring solutions.”
Solidus underlines its thought leadership as founder of the Digital Asset Compliance and Market Integrity Summit. It was a winner in the New York State Department of Financial Services TechSprint and is a founding Advisory Council member and working group co-chair of standard-setting organization Global Digital Finance.
The U.S. Treasury anti-money laundering agency, the Financial Crimes Enforcement Network (FinCEN), named Michele Korver to the newly created chief digital currency adviser position. She was previously digital currency counsel for the Department of Justice’s Criminal Division, and in that role was an adviser to the Treasury-led Financial Stability Oversight Council and the U.S. delegation to the Financial Action Task Force. A onetime U.S. Secret Service special agent, Korver spent more than 10 years as an assistant U.S. attorney in Denver, where she served as a cyber crime and national security prosecutor on international money laundering and darknet drug trafficking cases.
“Michele brings a wealth of digital currency expertise and will be a tremendous leader in coordinated efforts to maximize FinCEN’s contribution to the innovative potential for financial expansion of opportunity while minimizing illicit finance risk,” acting FinCEN director Michael Mosler said in a July 6 announcement, concurrent with the designation of Jayna Desai as the network’s first director of strategic communications.
Mosler, who came to FinCEN in February 2020 as deputy director and digital innovation officer, and became acting head after Kenneth Blanco left for Citigroup in April, departed in early August. Himamauli Das from K2 Integrity, who has extensive U.S. Treasury experience, is now acting director.
DTCC, SIX and Galaxy Digital
Depository Trust & Clearing Corp. and SIX Group are two financial market entities making digital-asset-focused hires, while a SIX executive has jumped to Galaxy Digital Holdings.
At post-trade infrastructure operator DTCC – which has launched several blockchain initiatives in recent years, potentially disrupting some well-entrenched legacy systems – Brian Oliver is newly appointed head of business development for digital assets. As reported August 9 in The Trade News, Oliver had been head of sales and global account management at IHS Markit. Prior to that 10-month stint, he spent nearly five years at Citadel Securities as head of fixed income, currencies and commodities sales for Europe and Asia. He reports to DTCC global head of strategy and business development Jennifer Peve.
“I am leading the business development efforts for DTCC’s innovative work to bring the same efficient, secure and resilient foundation to private market securities that DTCC has long provided for some of the largest and most complex financial markets in the world,” Oliver explained on his LinkedIn page. “As private market investing continues to grow at unprecedented levels and with companies staying private for longer, the infrastructure supporting this market has not kept pace. DTCC is leveraging best-in-class technology alongside cutting-edge innovation and expertise to modernize and digitalize the foundation underpinning the full lifecycle of private market securities.”
SIX in Switzerland chose David Newns to succeed Tim Grant as head of SIX Digital Exchange (SDX), effective October 6. As the unit nears final approval from the FINMA market regulator, Newns’ mandate is “to take SDX seamlessly into its next phase of full operations and growth.”
Newns was a State Street Corp. senior managing director who since 2017 was global head of GlobalLink Execution services, which include trading platforms Currenex and FX Connect. He said in an August 12 statement: “I believe that this is the perfect moment for our industry to redefine how it engages with its clients and stakeholders and, in turn, empowers them to serve their clients. SDX is in the ideal industry sweet-spot to achieve this, and I’m looking forward to driving its further growth and development.”
Thomas Zeeb, SDX chairman and SIX executive board member, said the infrastructure “challenge going forward will be to develop the relationships and partnerships – ecosystem, if you will – that will enable us to offer our clients what they are really looking for in challenging times: New services and products for their clients.” He said Newns “brings with him the background and experience to take us forward and extend the reach of the SDX platform throughout the industry.”
Tim Grant, formerly of the R3 Lab and Research Center, UBS O’Connor and UBS Investment Bank, was named head of the SDX business in March 2020. Effective August 16, he is head of Europe for Galaxy Digital, the Toronto Stock Exchange-listed institutional cryptocurrency and investment enterprise headed by hedge fund veteran Michael Novogratz.
“Europe is an important region for Galaxy Digital,” CEO Novogratz noted. “Along with Tim, our incoming chairman and senior adviser [and former Goldman Sachs partner] Michael Daffey is currently based in Europe,” as are many clients of Galaxy trading, asset management and investment banking businesses and of custodian BitGo, which Galaxy is acquiring.
James Morgan, BitGo’s general counsel for two years, previously with Genesis Global Trading and SecondMarket, moved to digital-asset platform FalconX as its first general counsel, Bloomberg reported on July 1.
Venture Capital Calls
People with legal and regulatory backgrounds, and better yet with exposure to fintech, cryptocurrency and blockchain, are finding places at venture capital firms. Perhaps most notable has been the crypto team built around general partner Katie Haun at a16z, the vaunted Silicon Valley firm formally dubbed Andreessen Horowitz. Included along with the group’s entrepreneurial and investment talent are Haun, a former federal prosecutor on some landmark cyber crime and crypto fraud cases (and a current Coinbase director); chief operating officer Anthony Albanese, who was the New York Stock Exchange chief regulatory officer and acting superintendent of the New York State Department of Financial Services (DFS); and advisory partner William Hinman, who stepped down late last year as director of the SEC Division of Corporation Finance. Hinman at the SEC made significant contributions to discussions on crypto-asset regulatory parameters and created the Strategic Hub for Innovation and Financial Technology, or FinHub, among other accomplishments.
Led by managing partner Hans Morris, a former president of Visa who also held senior posts at Citigroup, Nyca Partners is renowned in the fintech venture capital world for its extensive LP (Limited Partner) Advisor network of seasoned executives and practitioners, policy experts and academics. The firm recently installed Matthew Homer as its first executive in residence.
Morris said he considers Homer “one of the very few people in the world who was completely fluent and cogent in regulatory and policy issues, but also could clearly see the power and implications of innovative technology solutions . . . He will be an essential part of advancing Nyca’s efforts to support the mainstreaming of crypto applications in the financial system.
“Over the past half-dozen years,” Morris added, “financial Institutions have embraced fintechs as partners to help them serve their customers more efficiently, and we believe that crypto will become an increasing part of that landscape.”
Homer brought both start-up and policy experience – and an interest in tech-enabled financial inclusion – to his previous position as executive deputy superintendent for research and innovation at New York’s DFS. He was the first in that role, starting in 2019 and leading a division launched by superintendent Linda Lacewell, who had inherited and refined the state agency’s now six-year-old virtual currency licensing, or BitLicense, program.
After more than two years running DFS, Lacewell resigned effective August 24, when Governor Andrew Cuomo, who appointed her and whom she had previously served as chief of staff, left office. To succeed Lacewell, Governor Kathy Hochul nominated Adrienne Harris, a University of Michigan professor (and Nyca LP network member) who was a presidential economic adviser and Treasury Department official during the Obama administration.