London Blockchain Conference 2023 Day 2: Regaining customer trust through regulation
On a regulation-focused day two of the London Blockchain Conference 2023, a panel of industry experts found consensus that regulation is the best way forward to restore trust and profit to the digital asset space.
The collapses and scandals of the digital asset industry in 2022, particularly FTX, were the backdrop for the afternoon panel at the business strategy stage; and the lively discussion focused on whether and how regulation can fix consumer confidence damaged by the so-called crypto winter.
“It seems that the stronger the regulation, the better the business, surprisingly… and there is a lot of data to support this,” said Pawel Kuskowski, co-founder and CEO of Coinfirm and Gatenox.
He suggested that “regulation helps inject capital into an industry,” something he had particularly noticed in the case of the EU and its incoming landmark regulation, saying, “MiCA is attracting crypto projects and funds.”
The Markets in Crypto Asset (MiCA) regulation – which, fittingly for the conference (timing-wise), was formally signed into law on Wednesday by European Parliament President Roberta Metsola and Swedish Rural Affairs Minister Peter Kullgren – will bring sweeping regulatory changes.
Key new features include licensing requirements for digital asset service providers, new classifications for different digital assets, rules specific to those assets, and proof-of-funds requirements for stablecoin issuers.
Also bringing MiCA, when it eventually comes into force in 2024, will be an increased sense of clarity, which the panel agreed would encourage capital back into industry, at least in the EU.
“What we all want are rules to play by,” explained Nick Jones, CEO and co-founder of Zumo, a UK-based blockchain company.
Drawing on his experience of dealing with the British regime as it is, Jones stated that “what we have seen from a British point of view is a sort of proto-regulation which is difficult to get through … at the moment there are conflicting messages coming from different organizations.”
There is hope, however, as Jones also highlighted that “there have been good proposals from the Finance Committee and others, and bad proposals rejected”, pointing to the “crazy idea” of regulating crypto like gambling in the UK, which “thankfully” was. very quickly rejected by the government.
This led to some laughs and eye rolls from the assembled digital asset entrepreneurs and interested crowd.
The much-criticized Finance Committee report published last month strongly recommended that “unsupported crypto-assets” should be regulated as gambling rather than financial services under the principle of “same risk, same regulatory outcome.”
Both industry figures and politicians quickly rejected it, but the proposal was enough to get the debate about the assets spinning again.
Andrei Kirilenko, Professor of Finance at the Judge Business School, University of Cambridge, gives his thoughts on the recommendations of the Finance Committee and their comments on the halo effect, or a false sense of security, created by regulating “crypto” as financial services. former chief economist for the US Commodity Futures Trading Commission (CFTC), asked the rhetorical question, “why do regulators have such a hard time classifying this industry?”
As an answer, he gave the example of securities and derivatives.
“Securities are regarded as positive sum situations, where values are created. By contrast, derivatives are zero-sum gains, where value and risk are simply moved. This is why some view derivatives as gambling.”
Kirilenko pointed to the heavy criticism of US Securities and Exchange Commission (SEC) Chairman Gary Gensler, primarily among crypto bros and crypto-friendly Republicans, as a further case study of the difficulty even experts have in understanding these assets.
“SEC Chairman Gary Gensler knows what he’s talking about; he is not an idiot. It’s just that the asset changes in value, it’s hard to pin down, so it’s hard to regulate,” said Kirilenko.
The speakers seemed to agree that creating more certainty and consensus in definitions and classifications can help improve regulation and restore confidence in the industry. But knowing when and where these new rules apply is also key.
“If you’re sending money around the world, regulation still applies,” explained Angus Brown, managing director of Minit Money, who spoke of his experience working in the banking industry, where clear guidance is essential when dealing with billions of dollars, but also when deal with small consumers. This is clearly relevant when working with digital assets, exchanges and wallets, where users and customers often do not have custody of their own funds.
“As a consumer, you have a small amount of money, so you rely on the trust of the wallet host,” Brown said.
A lack of this important trust has scared many consumers away from the digital resource space, but the panel and audience seemed optimistic about the future.
For Jones, the “hype cycle is over”, but the UK Treasury’s consultation document, published in February, made all the right noises about adapting existing digital asset regulations while encouraging innovation.
Meanwhile, in relation to the EU, Kuskowski predicted that “MiCA is going to build the right ecosystem to grow crypto.” There were almost certainly many in the room, hoping that this prediction would come true.
See: Crypto regulation will make life easier for BSV
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