To coincide with the move of a certain editor of FT Trading Room to a new, digital finance beat, the world of digital finance has been thrown into chaos. I am not saying the two things are related, but I am not not saying that either.

Imposing a travel ban on staff of a failed technology company is headline news.

What has not been in the headlines, but I believe should be, given HM Treasury's recent consultation papers about the adaption of the UK's Special Administration Regime for crypto-related businesses and the 'bailing-out' of stablecoins, is what is happening at the cryptocurrency firms which are (technically or actually) insolvent currently.

What Andrew Bailey said not so many months ago is true: crypto firms are not (yet) systemically important, but they will be soon. How soon depends on the fall-out from the current chaos. If the precipitous fall in the value of BTC and other cryptocurrencies continues, it remains to be seen what the results will be: cross-defaults; 'LTV' ratio default levels; inability to withdraw funds or to meet margin calls have a knock-on effect. 'Soon' may be 'now'.

My colleagues Hayley Capani and Andrew Bowden-Brown are analysing other aspects of this from an insolvency law and assets traceability angle, so I will not tread on their toes.  

I restrict myself to two comments/questions:

  1. There are two large 'lenders' which currently have halted withdrawals. Both have retained their own legal counsel and both are in discussions with counterparties and creditors. That is good. What I do wonder, though, is why incumbent management is able to remain in control of the business. In traditional financial services firms, control would have been passed already to insolvency practitioners in order to protect creditors' and other stakeholders' interests. Under the proposed new regime, this would be the case in the UK. 
  2. Should crypto firms be subject to the same obligations as traditional financial services firms to offer 'custodian' services/accounts (i.e. accounts under the FCA's CASS regime)? What is the purpose of a custodian account if the relationship necessarily is one with all the hallmarks of a 'title transfer collateral account'?