Cryptocurrencies: Price fluctuation a problem for solicitors
Solicitors could improve their productivity by using distributed ledger technology (DLT) but need to take care if a client wants to pay by cryptocurrency, the Solicitors Regulation Authority (SRA) has cautioned.
A Risk Outlook report published yesterday looked at the different forms of DLTs and said smart contracts were an example of one that offered law firms the chance to work more quickly and save costs.
“The high potential cost and time savings from wider use of smart contracts will mean a likely growth in demand for their use.
“Firms that adopt these systems will be able to benefit from increasing productivity, handling greater numbers of largely automated transactions.
“Some contracts can involve a routine, manual process. Automatic drafting and contract management processes can free up more time for high-value work and allow for more transactions at a lower cost.”
Another DLT, electronic signatures, are a particular focus of HM Land Registry to help speed up conveyancing transactions, while Search Acumen – which has taken part in a global DLT trial for property transactions – estimated that conveyancers could save up to five hours per matter.
The SRA said DLT also enhanced “traceabilty” – as they made it harder to tamper with or forge data – and could reduce the risk of fraud.
“A blockchain-based conveyancing system, for example, could reduce the risk of fraudulent access or alteration of property or transaction records, increase efficiency due to automated due diligence processes, and reduce or eliminate legal and title costs for consumers.”
But the regulator also highlighted a series of barriers and threats, such as trustworthiness. “Although blockchain provides a transparent and reliable trail, it can be complex and many systems allow identities to be hidden.
“This can reduce trust in the system. For example, accidental transfers of money are difficult or impossible to reverse.”
When it came to anti-money laundering, “the involvement of anonymised cryptocurrencies will raise the money laundering, terrorist financing and sanctions risk in transactions.
“Firms may be exposed to this risk without warning, for example if an estate being handled in probate proves to include crypto-assets.” Source of funds checks may also be tougher.
The SRA said firms might find clients wishing to pay bills in cryptocurrency. This raised various issues, such as the client account rules requiring money held on account to be held in a bank or building society.
“As there are no compliant client accounts for crypto-assets offered by banks or building societies at present, payment for services in crypto assets will only be possible after the services have been provided or as a fixed fee.”
Meet price transparency requirements could be trickier, bearing in mind the high fluctuations in value of crypto currencies, the report added.
But the SRA suggested that the current falls in cryptocurrency values and the failure of exchanges “represent the end of the initial boom in values often seen with investment in a new technology”.
It continued: “They are likely to drive innovation in new forms of cryptocurrency that do not have the problems of the existing versions.
“Part of the motive for the development of new ‘stablecoins’ has been to produce cryptocurrencies with more predictable values to make them a more widely usable type of asset.
“If these new forms of cryptocurrency are also linked to secure digital identity standards, then they might help to reduce fraud and money laundering by providing unequivocal records of who the parties to transactions were.”
SRA chief executive Paul Philip said: “Some firms are at the front of the queue when it comes to adopting new ways of working while others need to be aware of what’s happening so they can properly support their clients and manage the impact on their business.”
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