Financial innovations like crypto currencies have reached a point of global awareness, but some regions are much more serious about regulations than others. This has caused many cryptocurrency companies to “jurisdiction shop,” or move to countries with the best regulations. But is there a better way? Angie Lau, CEO and Editor-in-Chief of Forkast News, joined a panel with regulation experts from the European Union and the United States in order to provide a global view of the situation.
There was a general consensus that regulation of some kind is necessary for the growth of the industry. Michael Gill thinks it’s a “brilliant idea.” Caroline Malcolm expresses her concern that “without providing regulatory certainty, the ability for these new types of asset class to really scale and access traditional investment markets is going to be extremely difficult.” She adds that “regulation alone is probably not going to cut it,” and that market norms and other influences in the market will be necessary in order to regulate technology in decentralized blockchain organizations. Marius Jurgilas agrees, and thinks that in order to do so they must “bring the industry into the house” and “allow them to develop financial products together with the regulator.”
Marius Jurgilas explains that “as a regulator, as a standard setting body, as a monetary authority, we’re selling trust. And if you trusted us, there would not be any conference like this.” He goes on to add that “the point that cryptocurrencies can replace the currency being issued by the central bank is probably not being debated now in the office.” However, the panellists agree that crypto assets are interesting for places in the world where capital markets are less developed and will therefore face less red tape from regulators. Caroline Malcolm adds that it’s not just about trust, it’s also about access to markets. Regulation is necessary for diffusing new technologies at a bigger scale.
Giles Ward shares his observation that there are 4 stages in the creation of regulations. First, regulators hear about a new innovation (ignorance), and then assume that they know the most about it because they are experts (arrogance), and then realize that it is actually more complex than they imagine or their assumptions were wrong (humility). After that comes the utility stage, where regulators understand the technology and can make rules. He thinks that they are around stage 3 or 4 for the main crypto communities, but that all countries need to share where they are in the cycle if a single international solution is ever going to be reached.
According to Michael Gill from the the CFTC, the lack of regulation in the United States is because of red tape from the government. He said, “ask anyone who’s ever had to deal with the US’ financial regulatory, they will say that the one thing that drives them crazy is how many agencies there are.” He adds that when presented with ideas about ICOs, the SEC saw “fraud, fraud, fraud.” Additionally, the Federal Reserve has been “lukewarm” about cryptocurrencies, because they don’t affect the dollar.
Caroline Malcolm has observed that regulatory issues are usually sorted out by allowing each country to find their own ways of regulating, and then making the one with the best solution the industry standard. They call this method an “international approach to different policy issues.” This also allows organizations like the OECD to know what kind of situations they need to cater to with new regulations. According to Marius Jurgilas, the United States is generally the standard-setting body for financial regulations. However, the EU has been making much more progress with regulations, especially in countries like France, with the PACTE Bill that is much more comprehensive than the regulatory framework in the US. Michael Gill emphasizes that studying what the EU countries are doing would help American financial authorities to have an example of how to get started with regulating, instead of just theoretical ideas.
The panellists disagree about whether or not jurisdiction shopping is a good thing for the industry or not. From Caroline Malcolm’s perspective, jurisdiction shopping can “undermine” what the frameworks are trying to achieve in each specific region, as each country has their own problems that the frameworks have been created to fix. On the other hand, from Giles Ward’s perspective, jurisdiction shopping can be beneficial because their interactions with different systems give them an understanding about what the common terms are within each system. Marius Jurgilas finishes by reminding everyone that from an economic perspective, there are ways to “maximize functions to achieve multiple objectives with a limited amount of costs to the industry.”
This was only a sample of the takeaways from the “International Regulatory Cooperation for the Development of Financial Innovation” panel. The full transcript of the panel is available below for more insights.