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Prime Factor Capital, “an asset manager that specialises in cryptocurrencies,” has been licensed by the Financial Conduct Authority (FCA), the region’s financial regulator, to operate as an Alternative Investment Fund Manager (AIFM).
London investment management firm Prime Factor Capital Ltd. became the first crypto-focused hedge fund authorized by the U.K.’s Financial Conduct Authority (FCA) as a full-scope alternative investment fund manager (AIFM) under European Union rules.
In their statement from July 1, they announced they will be regulated as an alternative investment fund manager under European Union rules. That should enable the company to manage more than 100 million euros ($113 million) in assets and target institutional investors.
As per Bloomberg, the $300 billion market for cryptocurrencies has been pretty much unregulated and digital assets have been used for all manner of illicit activities, from financing terrorism to buying drugs online. That has deterred regulated financial firms from entering the market.
According to the company:
“Depositaries provide an additional layer of protection to investors by providing independent fund oversight, asset ownership verification, and cashflow monitoring.”
Prime Factor CEO Nic Niedermowwe called the licensing, “a significant milestone… for the industry as a whole.”
He also said that the FCA’s approval will likely reassure the public, which has been privy to many stories of malfeasance involving cryptocurrencies. He said:
“Being FCA-regulated brings us under the purview of one of the most recognised financial markets regulators globally. This is particularly relevant in the cryptocurrency space, which has repeatedly captured headlines for poor operating standards and even fraudulent activity. Investors need to be able to trust their managers not only to generate returns, but also to act responsibly and in their best interest.”
Just for example, QuadrigaCX, the Canadian crypto exchange that went into collapse after their CEO and founder Gerald Cotten in December 2018 died, is still being investigated by the F.B.I. for “potential criminality” among senior staff.
Ernst & Young (EY) claims in their fifth report as the company’s bankruptcy trustee, that Cotten used consumers’ funds to trade for his own account on other cryptocurrency exchanges. The firm estimates that missing funds total CA$214.6 million. Prime Factor COO Adam Grimsley went to explain that the company will be held to scrupulous standards. He said:
“Full-scope AIFMs are subject to heightened transparency, disclosure and reporting requirements, in addition to a number of other obligations. We are pleased to be able to offer institutional investors with a suitable investment vehicle to deploy capital to this emerging asset class with its unique risk-return profile.”
According to a report by PricewaterhouseCoopers (PwC), there are now more than 150 active crypto hedge funds, which collectively maintain around $1 billion in assets under management (AuM). More than 60 percent of these funds have less than $10 million in AuM with fewer than 10 percent managing over $50 million.