“The Crypto Economy Needs Institutional Backing, Which Is Only Possible With Sufficient Regulation” with Nick Cowan CEO GBX
At Bonova Advisory we interview leading C-suites and Industry Thought Leaders in Banking and Finance. This week I had the pleasure to interview Nick Cowan CEO of Gibraltar Blockchain Exchange.
Can you tell us the story of how you got involved with the Regtech or Crypto markets?
Our journey began with the conceptualisation of the Gibraltar Stock Exchange (GSX) in 2014, as one of the youngest exchanges in the world we strived to be competitive, becoming one of the quickest to market options for issuers in Europe. As the exchange developed and our product offerings matured, we hit a fork in the road (pun intended): do we reside with existing legacy technology or adopt new and innovative frontiers? In 2015, we were also involved in structuring an Asset Backed Security, backed by Bitcoin, which introduced us to the workings of DLT. Around the same time the Government of Gibraltar had commenced a consultation process to introduce regulations around DLT (now in law), leading us to make the decision to fully adopt DLT in our business model whilst embracing best practices around governance and disclosure. Now we have a token sale platform and a cryptocurrency exchange, owned by a stock exchange!
Can you share 5 ways that Regulation and Regtech can help stabilize the Crypto Economy?
Regulation and evolving regtech could have a tremendous impact on the global crypto economy; there are five ways in which I can see this having a positive effect.
It is highly publicised that the cryptocurrency space has been a ‘wild-west’. One of the primary outcomes of increased regulation, such as the DLT regulatory framework in Gibraltar, will be to produce stability, particularly as DLT firms are now under the scrutiny of regulators.
With regulation, there are more of the rules and disclosures around transparency that we typically see in the traditional financial markets. One of the strengths of blockchain technology is its complete transparency, which coupled with regulatory requirements would mean fewer bad actors and increased confidence for consumers.
Some of the challenges faced by the crypto economy have been due to the lack of regulation, and with that, the absence of accountability. For a market to grow and mature, there must be a responsibility and consequences attached to improper action; this is the only way to attract institutional recognition and confidence.
Although the crypto economy has seen exponential growth, drawing the attention of the global media, it is still small when compared to traditional financial markets. To reach similar levels, the crypto economy needs institutional backing, which can only happen once there is sufficient regulation in place. The more mature the market, the greater the product range, the greater the liquidity.
Another critical factor in the success of crypto is mass adoption; it has the potential to usher in a new era of global finance. The stability brought about by a globally regulated environment could attract more users, whose confidence can only be captured through a robust regulatory framework.
What are the top concerns that crypto firms should be considering in order to have a competitive edge?
Other than the usual basics of running any financial exchange company (competent operators, tech, resources, culture and values, controls, etc.), in order to keep a competitive edge, crypto firms need to operate as though they are regulated, whether they currently are or not. We know the market is going to be regulated, it’s already happening. Gibraltar was the first jurisdiction to bring about a regulatory framework for companies utilising DLT, and other jurisdictions will soon follow suit if they have not already. Many crypto firms could be caught out if they are complacent to the coming changes. The primary concerns that should be considered:
Client controls: everything to do with the source of the cash and the client — AML/KYC, CFT and Proceeds of Crime measures as well as basic suitability tests and education etc
Security and customer care are vital when it comes to assets and custody — hot and cold wallet policies — and are particularly important in order to increase confidence
Are there controls in place to ensure a fair market with no pump and dumps, and are there market surveillance tools to avoid churning practices?
Can you share examples of measures you take to prevent an internal data breach?
We have developed a robust system of measures and countermeasures, one of the minimum requirements of being licensed by a regulator. All staff go through vetting and training as part of their induction as well as taking part in ongoing development for both compliance awareness and physical security. Awareness, education, and robust policies are a core element to having a robust control environment. We’ve brought experienced and highly skilled compliance professionals on board to build out our procedural processes internally. We also maintain multi-sig, multi-jurisdictional, air gap procedures, and controls regarding our hot and cold wallets.
Can you share a story of a time when things went south for you? What kept you going and helped you to overcome those times?
I left investment banking in 2004 after 20 years of 5 AM starts, wanting to spend more time with my family as well as run my own capital and go back to what I loved doing, which was trading. Like for many people, 2007 onwards wasn’t pleasant. Whereas I made money trading the markets during that period, I took some pretty big body blows in some of my other businesses — this was all pre-GSX.
These were pretty tough times — but I was lucky to have several things to keep me going. My wife of nearly 30 years who was there to kick me up the arse, some amazing friends, and then finally I discovered the Ironman triathlon (which being 115 kgs and a smoker was a game changer). I found that training became and still is a vital part of well-being — giving you time to step away and do something that will actually contribute positively to your work. I also believe in some fundamental core values which have helped me through my career and life: always be polite, it costs nothing; never be arrogant; always call a client back; and always operate with integrity and respect — if you do that your reputation will be upheld. I also hate surprises, so if there’s bad news, escalate it so it can be dealt with, don’t tell me a week later. Finally, never be afraid of failure — failure makes you better.
With GSX being one of the youngest exchanges in the world, like any startup we have had our fair share of bumps over the last 6 years, but I hire people smarter than me, and we uphold the values I mentioned above and believe in our product.
What are some things that you do on daily basis regardless of how busy you are?
Given we are busy every day, 7 days a week, you need to find a balance between work and non-work stuff. Outside of work I try to find time for my family — in my first career I didn’t do that well and missed a lot of my kids growing up — you can’t get that time back. I also try to train as often as I can — you can get caught up in the day to day of business, especially one in a sector as fast-moving as the crypto space. Gibraltar has Spain on its doorstep with some beautiful locations to cycle around, and I am lucky enough to be able to visit them on my bike! I have been out twice this week with my Head Trader for two 60 km cycles — he’s 15 years younger than me but I kicked his butt. I also always catch Netflix or a movie when I go to bed, and, paying homage to my Scottish roots, the film will be accompanied by a malt whisky!!
What are the top 3 upcoming conferences you are attending and are excited about?
We are looking forward to the Consensus in Singapore in September, as well as Web Summit in Portugal, and Consensus Invest in New York. The first event we attended ever as GBX was Web Summit in 2017 — the response was unbelievable, and we couldn’t believe the size of the place or how many people visited during the summit, over 60,000!
Can you please give us your favourite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
There have been so many, I have always tried to learn from people smarter than me, older and younger. Ace Greenberg at Bear Stearns used to say a bad trade is like cancer — you need to cut it quickly and use the money in a smarter way. I have certainly stuck to that philosophy: a bad trade, a bad business, a bad anything, if it’s causing you distress, needs to be removed so that you can move on.
Perhaps my favourite was from another guy who worked at Bear Stearns when I was there, John Slade, Chairman Emeritus (and in his 80s by then). John told a story about going to fight for the US in the second world war and telling his broker to buy shares in a company called International Business Machines, to buy on margin and keep buying if it went up. By the time he returned from the war IBM had made him a huge amount of money. Then in the late 50s he saw a Boeing pull up next to him at Frankfurt airport — he realised that jet engines would change the way we travel. He only ever traded two stocks in his career — IBM and Boeing! His life quote was, ‘If you get a change in technology and you can get in front of it, go all in and you will have the chance to make a lot of money!’ He was smart enough to see two opportunities. I think DLT is that event — our John Slade moment.
On a personal level, I go by a simple set of rules in business and life in general, and they are: Integrity, Respect and Reputation. Those three core principles are at the heart of what GSX Group represents. The Group’s integrity is of paramount importance and key to the success of our business. We treat all of our relationships with clients and third parties with the utmost respect and professional conduct on behalf of the Group. Above all our reputation is our badge of honor, it is the driving force behind our progress and development. We must have integrity to earn respect, and respect to build our reputation.
How can our readers follow you on social media?
You can find me on Twitter: www.twitter.com/NickCowanGSX but if you’re looking for something more interesting than me, then check out our social media for GBX, especially our telegram channel: https://t.me/GBXCommunity where we have a growing and vibrant community of GBX supporters! Our FORTs and ROCKers!