TRAction's Founder Quinn Perrott Talks about Reporting for Cryptocurrency Transactions

Established in 2015 by Sophie Gerber and Quinn Perrott, TRAction Fintech provides financial and regulatory technology services specialising in regulatory trade and transaction reporting across Europe and Asia Pacific.

As the co-CEO and founder of TRAction, Quinn focuses on assisting clients in Europe, Asia and Australia to meet their regulatory requirements with trade and transaction reporting solutions as well as development of the best execution platform. He has also provided educational sessions to Australia’s regulatory bodies in relation to operational aspects of derivatives and trading platforms.

Wanna be the Next Cover Person of Fazzaco Magazine?

In Fazzaco's interview this March, Quinn discussed, among others, how brokers should report trades with changing regulations. Today, we are honored to have him again to talk about regulatory reporting for cryptocurrency transactions.

---

Fazzaco: Recent months has witnessed a crypto mania. What have you heard from your clients? When was the first time you realized there might be some vagueness in broker's reporting?

Quinn: In January 2019, ESMA released a statement on crypto-assets:

"Our survey of NCAs highlighted that some crypto-assets may qualify as MiFID financial instruments, in which case the full set of EU financial rules would apply. However, because the existing rules were not designed with these instruments in mind, NCAs face challenges in interpreting the existing requirements and certain requirements are not adapted to the specific characteristics of crypto-assets."

The statement is not entirely clear as to whether cryptocurrency derivatives (crypto) should be treated as financial instruments. As a result, many of our clients ask our team whether cryptos are subject to ESMA's derivative reporting rules.

Fazzaco: ESMA has not clarified whether crypto derivatives should be treated as financial instruments. How should brokers classify crypto products under EMIR and MiFIR?

Quinn: TRAction do not currently consider cryptos themselves as reportable under MiFIR. As the instrument has to be traded on a trading venue, or the underlying has to be traded on a trading venue, within the EEA in order to be reportable under MiFIR, cryptos do not meet the criteria. Further, at this time, the only venue listed cryptocurrency products we are aware of are Bitcoin and Ether Futures which are listed on venues outside of the EEA.

In terms of EMIR, only derivatives are reportable. Therefore, a CFD on a cryptocurrency would be reportable. It is important to note that the EMIR Reporting Rules were not designed with these instruments in mind, so there is no category that cryptocurrency perfectly fits into and some lateral interpretation is required to report these instruments.

Fazzaco: According to your knowledge, how do regulators define crypto assets in their own regulatory framework? Should brokers report the same crypto asset in different ways according to different requirements?

Quinn: There isn't a regulatory reporting category into which cryptocurrency squarely fits. As it stands, the wider derivative industry and trade repositories themselves suggest reporting cryptocurrencies under the commodity asset class. This is because cryptocurrency does not have an ISO standard country code which is required for it to be reported as a currency.

Fazzaco: In your opinion, how should brokers classify BTC/USD (crypto+fiat currency)?

Quinn: Since crypto does not have an ISO currency code, it is not possible to classify and report it as a currency. BTC/USD being crypto/fiat currency, it is essentially just cryptocurrency that is pricing against a currency. Therefore, BTC/USD should be considered crypto not forex. We would suggest reporting it as a commodity.

Fazzaco: For a broker, what are the major difference in reporting crypto and forex?

Quinn: Firstly, crypto itself is not reportable under EMIR or MiFIR. The derivative of crypto however, is reportable in certain circumstances. In contrast, spot forex is reportable under EMIR but not MiFIR.

In terms of crypto CFDs and forex CFDs, the primary difference in the reporting of each is the asset class under which they are reported. Forex is classified as FX while crypto is generally reported as a commodity.

For further information on the reportability of cryptos, our team has summarised their reportability under EMIR and MiFIR in a recent article.

Fazzaco: How can TRAction help brokers and exchanges in reporting?

Quinn: With regard to the reporting of cryptocurrency, we are happy to review a broker's specific situation and provide our perspective. For general reporting under MiFIR and EMIR, TRAction can provide delegated reporting solutions, deal with trade repositories and/or approved reporting mechanisms on the broker's behalf and also provide specialist consultation and advice.

Fazzaco: Your major business covers Australia, the UK, Europe, Singapore, and Hong Kong. Would you help other clients offering services in the US, Middle East or Africa? Which regulator now has the best-defined crypto reporting regulations?

Quinn: We are currently expanding our services to support reporting in Canada and the US. With some of our existing clients having branches in Canada and the US, it has been a natural progression for us to expand into these regions. With that being said, most trade reporting requirements are based on a G20 commitment and have not yet been adopted by countries outside of that group.