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In this interview, Chris DePow talks about what drew him to the world of cryptocurrencies and what opportunities are now open for traditional financial services firms looking to get more involved in the sector…
About Chris
Chris DePow is an experienced compliance officer with experience in creating and implementing compliance policies that address financial crime related to cryptoassets, and has spoken extensively on the intersection of traditional and decentralized financial systems. Prior to joining Elliptic, Chris was a Vice President in the Global Financial Crime Compliance Group at JP Morgan, where he provided crypto-asset subject matter expertise to corporate and investment banking clients.
Q: What drew you to Elliptic and the crypto world?
A: I was actually a crypto skeptic for a long time until I found out about Ethereum. Seeing smart contracts in action has completely changed my perspective on what cryptocurrency (or other virtual assets) can do. Ethereum led me to dApps and the DeFi ecosystem and there was no looking back from there.
After becoming interested in cryptocurrencies, I looked for (and found) opportunities to help develop the crypto due diligence program at JP Morgan. While doing research to help create this program, I first learned about Elliptic and the necessity of a best-in-class block tracking and analysis provider. When I saw the posting for this role, sitting directly at the intersection of compliance program design and policy research, I knew I was a great fit.
Q: What do you see as the main opportunities for traditional financial services firms to get more involved in the crypto asset sector?
A: We are currently at a tipping point for mainstream institutional adoption of virtual assets. The legacy financial services sector will undoubtedly see opportunities continue to develop in the crypto space, but there are a few that stand out as particularly compelling.
Obviously, a bank (or potentially another financial institution) serves as a fiat reserve holder for stablecoins on a 1-to-1 basis. Recent regulatory guidelines, which give banks the green light to engage in this activity, combined with growing demand for these services – market Tether’s capitalization is up six or seven hundred percent year over year – creating an environment where regulatory risk can be effectively mitigated, and the business opportunity is too compelling to ignore. Reserve banks are likely to conduct significant blockchain oversight of the cryptoassets they support, to ensure they do not indirectly facilitate illegal activities. This monitoring will allow financial institutions to mitigate both the potential regulatory risk associated with problematic transactions and the reputational risk associated with a criminal incident.
Another fairly clear potential point of integration with the traditional financial industry is for banks to serve as custodians of virtual assets. This could take many different forms, but will likely include banks and fintechs building crypto integration into their digital platforms and offering institutional custody services to business clients. Entering this space will require a lot of evaluation of overall risk tolerance thresholds regarding virtual asset exposure, as decisions will need to be made about how much access a user should actually have to their cryptocurrency, whether merchant payments should be allowed, and other considerations. Banks and financial institutions will also need to decide whether to serve as direct custodians, with a full build-out of technology infrastructure, or instead work with a third-party custodian who will essentially hold the institution’s reputation in their hands. Both approaches can work, but there are many trade-offs to consider.
There is also the issue of providing financial services to clients of virtual assets. If you intend to include a large exchange, miners or other crypto-service providers, you must ensure that you address any regulatory compliance and financial crime issues that your client may face. Are they licensed? Do they list coins that could be considered securities? Do they have an AML program? The answers to these questions will vary greatly depending on the sophistication of the customer in question and their level of commitment to meeting their regulatory obligations. Financial institutions must have a tailored due diligence program and evaluation criteria to address each of these points – something Elliptic Discovery can really help with.
Q: What is unique about what you bring to Elliptic’s customers?
A: I speak the same language as Elliptic’s clients. Coming from a large, compliant financial institution, I understand the operational constraints, review processes, and bureaucracy of businesses that can be difficult to navigate. I am also a true believer. I don’t just think financial crime compliance is important because it helps an entity avoid fines and reprimands, I think it’s a moral imperative. Proper compliance helps reduce the harm caused by child abuse material, terrorist financing and organized crime. I am proud to be a part of the cryptocurrency compliance community and look forward to helping develop a secure and compliant industry.
Want to learn more about Chris and the Elliptic team? The head over to Meet the team or People from the Elliptical, and feel free to contact any of us if you’d like to discuss all things crypto compliance.
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