‘Forcing Bitcoin into the Regulated Environment’: Interview with Digital Securities Exchange
In the wake of Coinbase unveiling the US’s first licensed Bitcoin exchange, across the water in the UK, another operation is adopting a different, but no less official, approach.
Digital Securities Exchange, or DSX, is launching the country’s first trading platform to employ an accredited third party processor to run all its transactions. It has partnered with ePayments Systems Ltd, which is regulated by the UK Financial Conduct Authority (FCA).
“DSX has chosen to take an alternative approach by drawing parallels between e-money as an established and regulated product and digital currency,” the company stated in a press release issued last week regarding its launch.
The concept of blurring the treatment of e-money and digital currency may strike many as something which was perhaps inevitable as both areas matured. However, DSX’s bold and even controversial language regarding its attitude to digital currency regulation is certain to raise more than a few eyebrows:
“This simple, yet very effective move, produced something entirely unique by running all transactions via ePayments, DSX forced bitcoin into the regulated environment.”
Willingly incorporating digital currency into a regulatory framework is not something which the decentralization community has traditionally taken well, so it is its use by DSX as a promotional tool which is all the more surprising.
Cointelegraph was able to reach out to ePayments CEO Mike Rymanov and DSX’s Marketing Director Pari Andrade to learn more about their style of Bitcoin advocacy and their confidence in championing regulation to the current Bitcoin community and beyond.
CT: A recent DSX press release stated that you had "forced Bitcoin into the regulatory environment". The issue of regulation has been a controversial one within the cryptocurrency community. How do you think consumers will react to DSX presenting it as an attribute, and as the right way to go in order for Bitcoin to become mainstream?
PA: In my opinion, in order for Bitcoin to become mainstream one way or another it would have to get assimilated into current heavily regulated financial markets. Otherwise, it runs a risk of remaining a niche phenomena, never reaching mass adaptation.
According to the UK Financial Conduct Authority it has three operational objectives:
• To secure an appropriate degree of protection for consumers.
• To protect and enhance the integrity of the UK financial system.
• To promote effective competition in the interests of consumers.
We have made a conscious choice to establish DSX under the guidance, rules and regulations of the FCA as we strongly believe in setting our priorities right from the beginning. Protection of consumer funds, appropriate level of customer due diligence, FCA approved personnel, systems and controls are all in place with one aim in mind - to become a catalyst to a wider bitcoin consumer adaptation.
To answer your question, being a consumer myself, I believe it is all about trust. A company that has made significant investments to establish a regulated business has a great deal to lose and not just from the investment point of view.
Non-compliance carries a significant amount of risk starting from heavy fines to jail time to directors who are personally liable. I cannot think of a better motivator to make sure that the priorities are always met. At DSX we strongly believe that forcing bitcoin into the regulated environment will help us to build that trust.
CT: What would you say to other UK-based digital currency startups in terms of insuring their business against regulatory shifts, such as those which occurred in the Isle of Man scene last year? Are you yourself worried about this?
PA: Regulatory changes are inevitable and when a change happens in order to stay in business companies must adapt. When it comes to regulating bitcoin, as you have pointed out in the Isle of Man example, the situation is very fluent. My recommendation to digital currency startups would be to deliberately take time and analyze current regulatory environment, look into the products that they intend to release in short term and medium term and seek advice whether any of the intended products would naturally fall under regulations.
Let me give you an example. At the moment spot bitcoin trading is not regulated in the UK, however, in order to offer margin trading a Consumer Credit license is needed, derivatives would require a Multilateral Trading Facility license. These are complex licenses requiring a great deal of planning from organizational, technological, HR and financial points of view. Early professional advice is an absolute must to make any startup future proof.
CT: What made you choose the UK as a base for DSX, as opposed to an EU state with a more relaxed stance such as Denmark, or elsewhere?
MR: United Kingdom has the most developed financial market and regulations in the world. Establishing DSX in the UK was a natural choice for us. Being the CEO of ePayments, authorized e-money institution, and having built it from scratch I’m very familiar with the UK regulatory and business environment. Furthermore, over the years, I have built an extensive professional network that I can always call upon for a sound advice. Finally, the UK is my home where I have lived for nearly 20 years.
CT: How do you foresee a balance being struck between regulations and upholding of the decentralized values, which made Bitcoin so popular in the first place? Do you think a fully regulated exchange will ultimately prove more popular than an unregulated decentralized one?
PA: In my opinion, the decentralized nature of bitcoin will only benefit from proportionally applied regulation. Relevant consumer protection will built trust and strengthen the adaptation of this breakthrough technology. By providing reliable, predictable and secure transaction environment regulated exchanges will capture a significant part of the market.