Western sanctions against Russia lead to discussions about a procedure against crypto

Hey fintech family!

The newsletter this week begins with information from Frankfurt office manager Martin Arnold about how Binance is doing against the bypass of sanctions on his stock exchange. We also have a Q&A with one of the latest fintech unicorns that the Wall Street helps to reduce its Russia commitment. In addition, the summary section emphasizes two stories that show how investors give up the supervision of the rapidly growing sector of the digital assets, while the regulatory test is tightened.

What fintech insights into the Russian invasion do we miss? Share this at Imani.moise@ft.com or sid.v@ft.com with.

Is Krypto a risk of enforcing sanctions?

Since the West has imposed sanctions against Russia because of the invasion of Ukraine, Binance, according to trade volume, says the largest cryptocurrency exchange in the world that has been closed about 80 accounts per week due to customer connections to the accounts affected by the punishments.

The number was made exclusively available, since the cryptocurrency industry is increasingly defending its decision to continue to offer services for customers in Russia, although many western companies - including banks - cancel their connections to the country.

US and European authorities have called for an additional examination of the exchange of cryptocurrencies so that they are not used to avoid western sanctions. After the Russian invasion, the cryptocurrency exchanges, which had a rublic trade, has increased strongly to a maximum of more than $ 70 million a day, although according to the blockchain data platform Chainalysis, it has fallen below $ 10 million since then.

Christine Lagarde, President of the European Central Bank, said last week that crypto-assets “while we are talking here are certainly used to try to avoid sanctions that have been decided by many countries around the world against Russia”. The ECB unsuccessfully urged that the EU prohibit cryptocurrency exchanges from trading with customers in Russia.

In the USA, Mark Warner, chairman of the Senate's intelligence agency's shot, has proposed a law to contain the exchange of cryptocurrencies. "So that the sanctions imposed by the USA and our allies have the greatest possible effect on Vladimir Putin and his oligarchic friends, we have to close ways that they could use to avoid these sanctions," he said.

Warner's draft law has not yet been adopted, but so far the United States has taken a harder attitude than Europe. The law proposed by Warner would enable the government to sanction every "foreign actor of digital assets that facilitates the bypass of sanctions against Russia". It would also enable the United States to prohibit platforms under its jurisdiction to carry out transactions with cryptocurrency addresses in Russia.

In contrast,

In contrast, the EU only said that crypto assets are "transferable securities" that could be used to provide loans and loans and made it clear that they fall under their sanctions.

More than 400 groups offer ruble-based trading in cryptocurrencies, most of which are unregulated and enable anonymous access, according to Elliptic, a blockchain analysis company based in London. The company has identified "several hundred thousand crypto addresses associated with sanctioned actors based in Russia", as well as 15 million crypto addresses with broader criminal activities "with a Nexus in Russia".

crypto platforms and exchanges say that their systems actually make it more difficult compared to the traditional banking system to avoid sanctions or wash money, and indicate that the blockchain is an indelible recording that enables transactions to individual wallet addresses.

Tigran Gambaryan, Vice President for Global Investigation and Secret Services at Binance, said the FT that his 500-strong compliance team was "better equipped" than most banks to stop sanction violations. "We can trace transactions back several stages to look further down in the chain," he said. "We have a better overview of where someone comes from than banks."

In addition, Coinbase said that the cryptocurrency exchange resident in the USA said that she had seen "no increase in activities to avoid sanctions in the context of post-invasion". But the risk is still there. The company, which has no branches in Russia, but still handles transactions from Russian customers, has "blocked over 25,000 addresses in connection with Russian individuals or organizations, of which we believe they are involved in illegal activities" - most before Russia invaded Ukraine.

others say the idea that crypto would help individuals to avoid sanctions is even more nuanced. Michael Chobanian, founder of the Ukrainian Kuna cryptocurrency exchange, said the FT that the greatest risk is that some stock exchanges offer the Russians the opportunity to transfer money to foreign currencies abroad. "It's not about crypto; it's about fiat currency gateways," he said. "It is possible to transfer Fiat currency from Russia to any other currency without using crypto." (Martin Arnold)

Quick-Fire Questions and Answers

Every week we ask the founders of rapidly growing fintech to imagine and explain what they distinguish in an overcrowded industry. Our conversation, easily edited, appears below.

Last week, the US bank editor of FT, Joshua Franklin, talked to the CEO of Capitolis, one of the latest Fintech insurers, which collected $ 110 million of companies such as Canapi Ventures and George Osbornes 9yards with an evaluation of $ 1.6 billion. Co -founder Gil Mandelzis gave up his job as head of one of the largest trading platforms for fixed -income securities, Brokertec, to launch Capitolis in 2017. With the aim of modernizing the capital markets, Capitolis has received support from Wall Street heavyweights such as JPMorgan and Citigroup since then.

How did you start? It became very clear that from the perspective of services there will be a lack of commercial banks or capital market bank capacities worldwide. You won't have enough first -class brokers to operate the growing number of assets managed. So it became very clear to me that the business model of the large banks has to change that they have to become capitals and then themselves. There are two ways to achieve this. One of them is, let us find all unnecessary loads in relation to unnecessary positions that you have in your balance sheets and help you to remove them. And after you have eliminated everything if you still have to use capital, let us find a way to work with capital instead of having your own capital. There are compression products that help you remove unnecessary positions. And with a marketplace product that enables you to get capital when you need it.

How do you earn money? The revenue model is consumed. So if we allow the banks to eliminate capital or to accept capital, we basically make a small part of it. . . We are not yet profitable. It's a choice. But see you see a huge chance. Therefore we and our investors are very happy to invest.

Why can't incumbents do what they do? It depends on which business area. On the compression side we need a number of competitors who share their basic positions with each other and find opportunities for optimization. So you have to have a broker to do that. . . But even if you look at the democratization of access to all these options for practically every institutional investor that is out there, these are very sensible investments in technology. These are very long -term projects that can take three or four years. The banks are not set up on this. You could contact a few credit funds or a few large sovereign funds to find goals or to other banks. But if you speak of real networks and real democratization out there through potentially hundreds or thousands of potential investors, it is simply not realistic. The banks are not set up on this.

What solutions did you offer the banks to manage your risks during the war in Ukraine? without changing the risk, we can drastically reduce the amount to be billed. This is a big win for the banks, because some of the billing can either not be carried out because it should be done via a Russian bank or a local bank, or there is simply uncertainty as to whether you can carry out the billing. At the amount of the risk that we have eliminated with these banks, we speak of many billions of dollars that have been eliminated. . . The banks came to us and asked us to do it. The technology is there, people are there, they know us, they trust us. So it was something we could do in a very short time.

fascination fintech

Apple increases deeper into financial services. The Silicon Valley giant Apple took over the start-up company based in Great Britain for alternative credit tests, Credit Kudos, for its latest advance into consumer financing. After the start of his Apple Card with Goldman Sachs in 2019, The deal could be a step in the plan of the iPhone manufacturer, supposedly to introduce his own "Buy Now Pay Later" service, consultants told the FT.

More controls, fewer seats According to the pitchbook data, cryptocurrency start-ups collect billions of dollars of investors without giving up the seats on the supervisory board, which are usually associated with investments in the early phase. More and more risk capital providers are making board seats in companies with digital assets, since founders are trying to limit the influence of external supporters

Supervisory authorities are looking for the center of decentralized finances Global supervisory authorities, the alarm bells ring because of the hidden conflicts and risks in the rapidly growing decentralized financial market and question how "decentralized" the sector is actually. Most Defi protocols are based on centralization, and some have a hidden centralized authority, the board of IOSCO wrote in a report.