DeFi Compliance: The Future is Now!

Friday, May 20, 2022 | By The SS&C Learning Institute

DeFi Compliance: The Future is Now!

Crypto went from obscurity to mainstream, encompassing traditional ones such as Bitcoin and Ethereum, to an expanded regulatory ecosystem of stablecoins, such as Tether and digital currencies, in which regulators globally are putting in place a regulatory structure—albeit not as fast, coherently, and innovation-friendly as some market participants would like. The much-entrenched crypto skepticism has yielded to crypto acceptance, whether from FOMO, greed, or YOLO; the reality is that cryptos—in one form (hopefully comprehensively regulated) or another—appear to be a growing asset class in the financial-investing ecosystem. That is the easy part; now begins the journey of navigating the thicket of regulations and regulatory actions that will surely follow from a variety of regulators.

Financial Institutions Require Regulatory Framework for Crypto Trading [1]

A clear regulatory framework is vital for further institutional adoption of crypto trading and the growth of this asset class. Industry members note that an internationally trusted marketplace for institutional-only crypto trading needs to be established, and “this hinges on regulation.” Institutions, including global banks, have to respond to increased demand from their customers to offer crypto products. This is dependent upon a clear regulatory framework to cover this asset class. [2]

The SEC’s announcement on its newly renamed Crypto Assets and Cyber Unit heralds the importance of addressing good compliance and the potential risks for noncompliance. As noted, by nearly doubling the size of this unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and control issues with respect to cybersecurity. With additional resources, it will focus on investigating securities law violations related to crypto asset offerings, crypto asset exchanges, crypto asset lending and staking products (i.e., crypto mining), Decentralized finance platforms, non-fungible tokens and Stablecoins.[3]

The asset class is now mainstream. As the initial euphoria and easy money has perhaps dissipated, it is now time to integrate crypto into your firm’s compliance processes and procedures and treat it like any other product offered by your firm. FINRA, OCC, SEC, CFTC, NYSDFS, IOSCO, FinCen, FATF and OFAC among others are names that must be added to your firm’s compliance and supervisory lexicon. Advocating for financial innovation alone won’t cut it anymore.

According to a 2019 PWC survey, 42% of banks engaged in joint partnerships with fintech companies, with 94% of financial services companies expressing confidence that fintechs would help grow their company’s revenue over the coming years. The rapid adoption of bank fintech partnerships in the financial services industry demonstrates the need for additional compliance resources to support this growth. While some banks initially viewed fintechs as a threat (and some viewed crypto as Ponzi schemes), many of them are now finding that fintechs can help them flourish as decentralized finance continues to grow. For fintechs, partnering with banks represents an opportunity to build scale and their global presence, and mitigate compliance and regulatory burden. [4]

Upcoming Webinar

Join the SS&C Learning Institute June 15, 2022, as we delve further into the evolving regulatory landscape for digital assets. Register for and view the "Digital Asset Compliance and Related Issues" webinar agenda.

The SSC Learning Institute is a division of SS&C dedicated to providing continuing education for today’s professionals. Our webinar offerings are delivered by industry-leading subject matter experts and cover a wide variety of topics, from key regulatory updates and new investment vehicles to trending topics such as ESG investing and digital assets. To learn more about the SS&C Learning Institute, please visit

Alternative Investments, Asset Management, Fund Administration, Regulation, SS&C Learning Institute

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