Is there a fintech future for Jersey?
Leading cryptocurrency exchange company Binance are hoping to set up in the Island. JEP business editor Gwyn Garfield-Bennet looks at what that could mean for Jersey.
There can be few businesses which have seen such a meteoric rise as Binance.
The world’s leading cryptocurrency exchange was started less than one year ago, when its founder raised $15 million to launch it. In one 24-hour period alone, a quarter of a million people signed up and on some days it’s reported to see more than $6 billion in transactions. It is capable of processing 1.4 million orders per second, and is not only extremely fast, but it’s also reliable, with robust anti-hacking measures that have been the Achilles’ heel of other lesser cryptocurrency exchanges. Its founder, Changpeng Zhao, known as CZ, has been named by Forbes on its Cryptocurrency Rich List. He was third, with an estimated fortune of $2 billion, and made the cover of its February edition in his signature black hoodie – he may well have risen even higher on the list since then.
The nature of the business is that it’s decentralised, there is no one head office, although Binance’s chief finance officer, Zhou Wei, who has been in the Island this week, said Malta was the defacto headquarters for the crypto exchange. They’re in Jersey because they’ve just signed a Memorandum of Understanding with Digital Jersey to start a Sterling-to-crypto exchange in the Island.
The announcement is significant for Jersey on many levels. Firstly, at its most local, are the 40 jobs that will be created, and the commitment from Binance to invest in education and skills in the Island. Secondly, this is the first time that our government, Jersey Finance, the Jersey Financial Services Commision, and Digital Jersey will have all pulled together on such a scale and is indicative of the way ahead.
The Innovation Review by McKinsey was all about the various bodies working together. Over the past two years relations have been getting closer, with a clear recognition that they’re all pulling in the same direction for Jersey. Perhaps the biggest significance though isn’t related directly to cryptocurrencies, but the technology behind it. Binance’s arrival may herald the start of a blockchain and distributed ledger ecosystem in the Island. In much the same way as Skype boosted Estonia’s digital start-up revolution.
Mr Zhou told the JEP: ‘We are funding 100 million dollars ourselves, but have an alliance of close to a billion dollars that will be investing into the blockchain ecosystem. With the set-up of the fiat (Sterling) exchange there will be a lot of interest from the blockchain universe looking at Jersey. We definitely want to bring Binance Labs into this region and invest out of here. There is also the Binance charitable foundation, which looks at education, especially in terms of bringing more people to understand the blockchain space.’
Binance is going to bring liquidity and expertise to Jersey. Once you have a ready pool of expert investment money, others will follow.
The move fits right in with Digital Jersey’s whole-Island sandbox initiative and is a clear move to co-operation between the independent fiefdoms of finance and digital into fintech.
However, Binance, as a cryptocurrency exchange, hasn’t experienced plain sailing. It was forced to move on from Japan, and other jurisdictions have issued warnings, as regulators around the world crack down on cryptocurrencies. Prices are subject to dramatic fluctuations – both up and down, and crypto has been linked to criminal activity. There are many detractors who call the whole cryptocurrency space a giant pyramid scheme which will inevitably see only those at the top winning. So, its move to create an exchange linking traditional currency with crypto and having it regulated to the highest standards could be seen as a good future-proofing step for the business.
Could it create problems for our traditional finance industry? External Relations Minister Ian Gorst, who also has responsibility for finance, is adamant that the new exchange is good news for the Island: ‘This is a cryptocurrency exchange that wants to engage with fiat currencies. They are recognising that members of the public want to be able to exchange a cryptocurrency into a traditional currency that is more understood and has a better store of value, because it’s backed up by the country that issues it.
‘When that money goes into pounds, those customers have to meet their AML and CFT obligations because we cannot be used for money laundering or financing terrorism, and we in Jersey meet very high standards. That’s one of the reasons why Jersey is attractive, because they know we meet high standards.’
His words are echoed by Geoff Cook, chief executive of Jersey Finance, who said he welcomed this engagement with Binance and recognised the potential of distributed ledger/blockchain technology and fintech for the future success of Jersey.
Mr Cook said: ‘We also look forward to working closely with Digital Jersey, government and the JFSC on the ongoing development of policy and legislative proposals to regulate distributed asset exchanges. In line with any new commercial interest in Jersey, Binance’s proposal will be assessed by our key stakeholders on its ability to align with our corporate governance structure, reputational framework and digital strategy.’
Binance has been over this week and is already in exploratory talks with banks and looking at office space. They’re impressed with the welcome they’ve received. Stephen Stonberg, business development, said: ‘Our interaction has been extremely welcoming and fast from Jersey’s government and extremely accommodating, and they actually get it. They understand the issues, they get it discussed, agreed and move on.’
It’s clear that the Binance team like the existing regulatory infrastructure in the Island, as well as the fact we were one of the first countries to clarify the legal position of cryptocurrency exchanges in 2015.
What about timeframes? It’s interesting to note that it has been just three weeks since Binance first mooted this proposition, when they spoke to Carey Olsen, who made the introductions. They have said they will move as fast as the government will go. Government has assigned a link person to join up the various agencies in the Island, and to provide quick solutions to get this up and running as quickly as possible.
Senator Gorst added: ‘The alignment we have between our regulator, government and promotional bodies, is one of our differentiating factors and that means we can work quickly.
‘This will be a test for us, but a test we absolutely have to meet if we want to have a strong economic future.’