VP Strategic Partnerships and Regulatory Affairs
Ben grew up coding and exploring computers, and went on to build the world’s first interest rate swap trading platform in 2001.
He later led regulatory teams at Accenture and PwC, before spending eight years with HSBC as a Regulatory Conduct and Financial Crime Specialist — a role that involved writing the bank’s first policy on Bitcoin in 2013.
Welcome to the latest edition of the Regulatory Radar!
This month I share some personal insights and commentary on several of the most interesting things going on in crypto regulation & compliance.
Here are my highlights from September’s activity.
The road to regulatory clarity for cryptoassets in the US has proved to be long and winding, but things look as if they are beginning to straighten out.
Over the past month, numerous actions by the Securities and Exchange Commission and Commodity Futures Trading Commission have given some sense of where the lines are ultimately set to be drawn, despite limited feedback from President Biden’s executive order examining the issue.
In a statement to the Senate Agriculture Committee, CFTC chair Rostin Behnam laid out why his agency should become the primary regulator for the sector, saying that its “expertise and experience make it the right regulator for the digital asset commodity market.”
“The volatility in the market, and its impact on retail customers – which may only worsen under current macroeconomic conditions – emphasizes the immediate need for regulatory clarity and market protections,” he said.
SEC chair Gary Gensler has also continued to push his view that some cryptoassets function as securities and should therefore come under the purview of the agency.
Speaking after the Ethereum Merge, Gensler said that proof-of-stake platforms have the characteristics of a security, potentially meaning that EVM-based projects could come under the SEC’s authority.
Despite all of this however, there remains a large contingent in Congress and elsewhere in the US governmental structure that support an approach which backs innovation while reining in the more damaging aspects of the cryptoasset sector.
One of those individuals is none other than Federal Reserve chair Jerome Powell, who recently said that regulatory efforts for decentralized finance need to be done “carefully and thoughtfully”, adding that the Fed had no immediate plans to introduce its own central bank digital currency (CBDC).
Following several years of dragging its heels somewhat on crypto regulation, the UK looked to have turned a corner earlier this year when then-Chancellor Rishi Sunak backed a sterling CBDC and set out to make the country a crypto hub.
After Sunak lost out to Liz Truss in the race to succeed Boris Johnson as Prime Minister, there was some concern that the crypto issue would slide to the back of the governmental agenda once more.
However, those concerns seem to have proved misplaced, with new economic secretary to the Treasury Richard Fuller telling Parliament’s first ever crypto debate that the government remained committed to creating a positive environment for digital asset projects.
“During today’s debate, honourable Members have rightly focused largely on the risks of the new technology, concerns about consumer protection and areas for regulatory clarity.”
“But I suggest that we all share the hope that, through innovation and creating the right conditions, we can achieve opportunities for the crypto industry in the UK to contribute largely to the growth of the wider economy,” Fuller said.
That doesn’t mean that the country is going to become a crypto free-for-all though.
In September, the UK also introduced legislation which would give the country’s National Crime Agency the power to seize, freeze and recover cryptoassets which are suspected of involvement in illicit activity.
The Economic Crime and Corporate Transparency bill targets a wide range of anti-money laundering efforts, but crypto was specifically mentioned as an area where the authorities feel that more can be done to control the flow of illicit funds.
While individual governments have pressed ahead with their own versions of digital asset regulations, persistent calls for an international approach to governing the sector have also emerged.
That partially reflects the anxiety among policymakers about policing the market, as well as crypto’s inherently cross-border nature, lying as it does outside the realm of traditional financial structures.
The International Monetary Fund (IMF) has been among those pushing for a supranational approach, highlighting the patchwork of regulatory efforts which have been adopted and the perceived need for a more cohesive approach to governing digital assets.
In a recent blog post, the fund backed a global policy response to the issue, saying that this would “bring order to the markets, help instill consumer confidence, lay out the limits of what is permissible, and provide a safe space for useful innovation to continue.”
“The regulatory fabric is being woven, and a pattern is expected to emerge. But the worry is that the longer this takes, the more national authorities will get locked into differing regulatory frameworks,” the IMF’s Aditya Narain and Marina Moretti said.
“This is why the IMF is calling for a global response that is (1) coordinated, so it can fill the regulatory gaps that arise from inherently cross-sector and cross-border issuance and ensure a level playing field; (2) consistent, so it aligns with mainstream regulatory approaches across the activity and risk spectrum; and (3) comprehensive, so it covers all actors and all aspects of the crypto ecosystem.”
However, whether or not a coherent international approach is possible even at this point of the market’s development is questionable, given how rapidly individual governments are now creating their own frameworks.
Japan has proven to be a happy home for crypto regulation, with the country’s lawmakers moving to create a workable framework, and collaborating with market participants to make it a hub for digital asset activity.
While in recent months some tensions have emerged between the industry body responsible for leading the charge on governing the market and the country’s regulators, policymakers have forged ahead with their own agenda.
With Web3 policymaking remaining in the hands of politicians rather than bureaucrats (as is the norm in Japan), the former have opted to bypass some of the hurdles usually faced by new rules.
That means legislation is appearing much faster, and is led by politicians pushing for an accommodating stance, which can only help the industry’s cause in the country even more.
The European Union’s Markets in Crypto Assets (MiCA) legislation is set to become one of the industry standards for digital asset regulation, and leaked drafts of the final text of the bill reveal where the responsibilities are likely to fall.
One area that is reportedly a focus of the bill is anti-money laundering across Web3 asset classes, with everything from non-fungible tokens (NFTs) to the metaverse set to come under the scope of the regulations.
“The metaverse offers new opportunities for criminals who can convert cash acquired through illegal activities into non-traceable currencies to purchase and sell virtual real estate, virtual lands and other high-demand goods,” the draft reportedly says.
Whether or not this will be enforceable in practice is another issue. The recent US sanctions on crypto mixer Tornado Cash demonstrated the difficulties of applying such approaches to what is considered to be open source code, and the stage is set for a similar dispute in the EU.
Elsewhere, the European Central Bank has raised concerns about a CBDC for the eurozone as it continues to weigh whether or not to introduce a digital euro.
In a progress update, the ECB played down the prospects of peer-to-peer verification for such an asset, with executive board member Fabio Panetta, telling lawmakers it is of “utmost importance that the eurosystem retains full control over digital euro issuance and settlement.”