Hazy Regulations Challenge Crypto, Says Gemini Chief Compliance Officer

Opaque regulations remain a major challenge for the cryptocurrency industry, according to Elena Hughes, compliance manager for cryptocurrency exchange Gemini Trust Co.

She joined New York-based Gemini in May 2020 after more than a decade of compliance work for traditional financial institutions such as Morgan Stanley and Goldman Sachs Group Inc. Gemini was started in 2015 by twin brothers, Cameron. Winklevoss and Tyler Winklevoss.

Ms Hughes said she found navigating Gemini’s evolving regulatory landscape to be similar to the process of financial companies implementing the Bank Secrecy Act, an anti-money laundering rule, and its amendments to the early 2000s.

Many call decentralized finance, or DeFi, the “Far West of finance”. This rapidly growing industry aims to provide automated banking services for cryptocurrencies to everyone, without intermediaries. But DeFi is still in its infancy, which means there are risks. WSJ explains. Photo illustration: Tammy Lian / WSJ

Ms. Hughes manages approximately 40 people within Gemini’s compliance team, working on issues such as transaction monitoring and investigation and client onboarding, and reports to the Corporate General Counsel. A major industry-wide issue she’s working on is the so-called travel rule.

The US Treasury Department proposed rules last year that would apply an existing banking regulation known as the travel rule to cryptocurrency transactions. The Treasury Department said banks and cryptocurrency trading platforms should collect, maintain and transmit records of a client’s cryptocurrency transactions and counterparties, including verifying their identity, for any transaction exceeding $ 3,000. The Treasury has released its proposed rules and solicited public comment, but has yet to complete the rules.

The Wall Street Journal spoke with Ms. Hughes about her experiences transitioning from a more mainstream career in the financial industry to working for a financial technology firm, hiring compliance professionals, and her perspective. on the challenges Gemini will face in the coming year. Edited excerpts follow.

WSJ: Why did you decide to switch from a job for traditional financial institutions to a crypto startup and how did you experience this transition?

Mrs. Hughes: I have spent most of my professional career in the private sector fighting money laundering… When I joined the industry in 2007, we were still feeling and iterating on what [the USA Patriot Act] actually looks like some of those companies, brokers, and the like that may not have gone through such a comprehensive AML framework at the time.

It was interesting growing up in this industry and seeing the industry go through a variety of scandals, from Ponzi schemes to the 2008 financial crisis, what the fallout was and some of the iterative financial crime activities that businesses continue to do. ‘identify. What really appealed to me about Gemini in particular – and perhaps the crypto space more broadly – is this ability to continue to iterate and manage this risk while operating in what I like to call “the. Gray”.

I think what was really great about the transition to Gemini was the fact that Gemini itself is well regulated. I was familiar with the compliance framework that was in place even before I joined, in terms of the thought process around structuring a financial crime program, which basically begins by identifying risks, understanding what products we deal with, what customers we seek to target, how we distribute our products. It’s the same fundamentals.

The difference is, of course, in the asset class itself, and some of the nuances about how we monitor and monitor activity in this asset class that go beyond your traditional typologies of money laundering. money we’re all used to from an asset. prospect of transfer.

WSJ: What does hiring Gemini compliance professionals look like in this tight job market and rapidly growing industry?

Mrs. Hughes: I think the market is indeed very competitive right now… We are looking to add and iterate because what we deal with on a daily basis is risk assessment and identification of emerging risks. The business is growing and we have to adapt to these risks… if we move into a new jurisdiction, for example.

The number of challenges that we face are so interesting to solve that compliance is really exciting… But for me, it is for these really innovative problems that we are dealing with. And because from the perspective of the United States alone, there isn’t a single regulator overseeing everything today, and so we have [multiple] regulators to which we are rightly indebted. We adhere to the regulations of [the New York State Department of Financial Services], to the multitude of state regulators and others. All of this requires a really creative and iterative staff to make sure that we are pulling all the right levers and complying with all the right requirements.

WSJ: What challenges do you think of for the coming year?

Mrs. Hughes: One of them is the constant and certain lack of regulatory clarity in some aspect of the industry or business in which we engage. The other is the travel compliance initiative that we have as an industry that applies to us. The asset class or blockchain technology is such that even if you want to comply, unless you want to broadcast your customer information on the blockchain, there really is no way or [the method] did not exist to enable companies to comply meaningfully.

So this decentralized industry came together and formed this solution effectively, [which] is to use this centralized mechanism to identify who is on each side of the transfer.

This US travel rules working group, which has now been renamed “Trust”, [an acronym for the Travel Rule Universal Solution Technology] is actually a conglomerate or amalgamation of those players in the space, ourselves and Coinbase and others, who have come together to create this compliance-driven regulatory solution to be in compliance with the rule. I think this is an extremely powerful theme because it negates some of the fundamental criticisms that crypto companies don’t want to comply or that they aren’t regulated or that they are free.

We are truly here collectively because we are passionate about this industry. We are passionate about this asset class. And our point of view is that for that to work, you need to continue to build trust in this ecosystem. And to get there, you have to make sure people are running over the edge. And that’s how we think about it.

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Write to Mengqi Sun at [email protected]

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