Last week, I had the pleasure of moderating a panel at the inaugural AFME/INM Global Innovation Institute.
My panel included Domitille Dessertine of French AMF, Klaus Lober of the European Central Bank, and Eric Larchevêque, Founder and CEO of Ledger and we discussed the future of crypto assets both in Europe and globally. I’m going to write a fuller post on that discussion, because I believe it’s worth its own space.
In the meantime, I want to highlight something that was repeated again and again during my time in Paris: the need for strategic, international coordination in respect the cryptocurrency and digital asset industry.
Yuko Kawai-Yamada of the Bank of Japan called for international law enforcement coordination, especially as it relates to the tracking of digital assets that have been involved in crime.
A representative of Bundesbank noted while some jurisdictions have been regulated, others have not. This patchwork of differing laws, rules and guidance is incompatible with inherent global networks, creating difficulties for businesses and governments alike. He asked his fellow regulators how could they work to harmonize.
CFTC Commissioner, Brian Quintenz, said while there are risks present in each jurisdiction, the risk tolerance differs greatly between jurisdictions. This can make it difficult to “normalize” standards globally.
The Financial Times touched on this subject in an editorial published earlier this week:
This is a highly complex market. Regulators are still working out how to police it. But as crypto assets and technology move into broader use by growing numbers of people around the world, a co-ordinated and appropriate regulatory framework is needed.
International coordination sounds great to many (and not great to some) but how do we make it work?
- What body or bodies should drive the harmonization?
- Who should be at the table(s)?
- How can or should it be enforced?
- What should aspects should we focus on?
A top candidate for attention would be rationalizing anti-money laundering rules and publishing base-level standards and expectations of platforms. Similar efforts have been successful amongst “traditional” financial institutions and there are legitimate risks in the digital currency industry that likely need to be addressed. I say this understanding somewhat-fully the unique challenges that decentralizing technologies and their constituents inherently present.
U.S. Treasury’s Assistant Secretary for Terrorist Financing, Marshall Billingslea testified in the U.S. House this week that Treasury believes the “technology is here to stay”, and:
“[F]or that reason we have made the US presidency for the Financial Action Task Force (FATF) a year-long presidency that started in June. We have decided to make securing international agreement on a global standard how we regulate anti-money laundering regulations for cryptocurrency to be one of the three priority areas for us. I’m optimistic that at the FATF meeting in October, the nations will agree to the standard.”
October’s FATF meeting — along with the ongoing work of the G20 — will be important to watch. The issues, innovations, and risks, around crypto-to-crypto products are particularly in need of thoughtful attention and leadership.
Beyond identifying specific areas of focus for harmonization, there must be a broad conversation regarding how we rationalize global regulatory expectations for the larger digital finance industry. I’d argue that the advent of digital assets and blockchain technology, as a pure distillation of digital finance, hastens the need for this larger conversation.
In the U.S., there clearly needs to be a coordinated and strategic approach. We’ve talked for years about the need for a strategic framework for blockchain and digital currencies, modeled after the Framework for Global Electronic Commerce. Michael Beckerman, CEO of the Internet Association, wrote eloquently on this topic in a NY Times op-ed in 2015
Myself, along with a number of colleagues from the Berkman Klein Center for Internet and Society, have wrestled with this very topic and we’ve hosted a number of conversations with regulators and industry to surface some potential answers. We hope to publish some of our findings soon.
In the meantime, while digital currencies were not specifically addressed in the recent U.S. Treasury report on fintech (not surprising given the relative lack of maturation of the industry), it’s a good example of the positive engagement Treasury has made to the larger conversation around the digitization of finance.
Further to the work of Treasury, the continued work of the CFTC, CFPB, SEC, CSBS, and others, are shining examples of what can be done when high-level commitment is present.
Let’s hope we can bring the learnings of these collective efforts to inform a positive framework for the rewired, global financial world we are quickly entering.
(Thank you to Jeff Cartwright, Ian Mair, Dan Morgan, and David Ostojitsch for their various contributions to this post.)