Compliance Officers Wary of Switch to ‘Wild West’ Crypto Sector

NEW YORK/LONDON — After almost three decades in senior compliance roles at large financial firms including Bank of New York Mellon’s Pershing and Goldman Sachs Group Inc, Jeff Horowitz made an unconventional career move.

In July he became chief compliance officer at cryptocurrency exchange Coinbase, taking a leap into the more lightly regulated world of digital assets.

“It’s not for the faint of heart,” Horowitz said of the move from compliance on Wall Street to a cryptocurrency startup. “You need to have a flexible risk needle. The old school attitude of compliance being Doctor No really doesn’t translate well to this industry.”

Horowitz is one of several senior compliance officers hired by cryptocurrency firms over the past year in a recruitment spree aimed at helping them cope with increased regulatory scrutiny and becoming more palatable to mainstream investors.

The companies are especially keen to poach executives like Horowitz who have spent years in the legal and compliance divisions of large banks and law firms. But convincing them is not easy, say headhunters and recent hires.

They tend to be risk averse and could be put off by the industry’s libertarian founding ethos which can mean hostility toward government regulators.

Digital currency trading has also faced a year-long slump in volumes, making it harder for firms to attract candidates with promises of crypto riches.

Annual salaries for senior positions in London are around 120,000 pounds ($158,000) or more and in the United States around $300,000 or higher for larger companies, recruiters said.

As these salaries are in line with the mainstream financial industry, recruiters pitch the chance to work in a fast-moving and emerging industry.

“The best chief compliance officers have successfully mitigated risk for a living, and they tend to be relatively risk-averse when thinking about their careers,” said Scott Fletcher, a founder at fintech C-suite recruitment firm Intersection Growth Partners.

“To find a person who has the skill set and is also willing to take the risk to join a cryptocurrency firm, it’s tough.”

Carrying out checks on new clients, fielding requests for information from law enforcement, and figuring out what laws may apply to new financial assets – often across jurisdictions – are among the jobs that can be more challenging in a crypto firm.

“On-boarding a new client you need to undertake careful due diligence,” said Charles Beach of Lendingblock, a London-based securities lending platform for cryptocurrencies. “But you might not obtain the same level of assurance from a firm in the still very new crypto industry as you would from a mainstream financial firm.”

He previously worked in senior risk positions at trading firm IG Group, UBS and PwC.

The crypto industry has been peppered by scandals including hacks, technology failings and alleged use of virtual coins for money laundering and on illegal online marketplaces.

In September the New York Attorney General’s Office said several cryptocurrency exchanges faced conflicts of interest, were vulnerable to market manipulation and put customer funds at risk.

The same month, British lawmakers said the cryptocurrency market resembled “the Wild West” and should take steps to protect consumers and make it less vulnerable to hacking.

Some cryptocurrency industry bodies, such as Britain’s CryptoUK, have welcomed calls for regulation, urging a balance between rules to shield consumers and nurturing innovation. Others, like Global Digital Finance, have looked to establish industry-wide international standards.

Still, major lapses continue to happen.

In January about $135 million in cryptocurrencies were frozen in the user accounts of Canadian exchange Quadriga after its founder, the only person with the password, died suddenly.

In an affidavit filed on Quadriga’s behalf, the founder’s widow said she did not have the password to a “cold wallet” that held the cryptocurrencies on the founder’s computer.

A year earlier hackers stole cryptocurrency worth $530 million from Tokyo-based exchange Coincheck, prompting an industry-wide crackdown by Japan’s financial watchdog.

Coincheck eventually repaid affected investors some 46 billion yen ($413 million) with its own funds, and was bought by online brokerage Monex Group Inc last April.

As regulators consider stricter new rules for exchanges or ramp up enforcement of existing ones, demand for experienced compliance professionals has grown.

“In the last 12 months we have seen somewhere near a 230 percent increase in volumes of compliance-related jobs,” said Zeth Couceiro, the founder of Plexus, a London-based recruitment firm whose specialties include cryptocurrencies.

Exchanges are also looking for employees who can help them adopt standards to appeal to more mainstream investors such as pension funds and asset managers. They have largely stayed clear of crypto, in part because of concerns about security breaches and a perception of lax internal controls.

“The people that can do that are the ones that have dealt with regulation for highly regulated institutions,” said Josh Goodbody, who was hired as general counsel for global sales and institutional business at Singapore-based exchange Huobi in June. Goodbody’s experience includes roles at State Street Corp and JPMorgan Chase & Co.

Some executives who have made the switch say the industry’s reputation still gives them pause.

A chief compliance officer at a major Japanese exchange said founders of cryptocurrency companies often lack the experience and rigor needed to run a financial company.

“Every day I experience the difference,” the person said. “It’s huge – it’s like going from major league baseball to little league.”