What’s next for blockchain regulation?
On the 12th and 13th September GNY’s Chairman of the Board, Peter Davies, was among the two thousand attendees at the second OECD Global Blockchain Policy Forum in Paris. The OECD event was a major coming together of interested parties from governments, academia, NGO’s and the private sector and it offered some fascinating insights into the potential for distributed ledger technologies and some of the political and regulatory challenges that lie ahead. Below are some of Peter’s key take-aways.
- Investment is big and getting bigger. The European Union’s Joint Research Centre used the Forum to introduce its July 2019 report “Blockchain – Now and Tomorrow”. The report quantified the rapid growth in investment in blockchain start-ups since 2009. Serious levels of funding began to appear in 2014 with €450million and rapidly increased to €3.9billion in 2017 over €7.4billion in 2018.
- Fighting terrorism trumps self regulation. The Financial Action Task Force, an inter-governmental agency set up by the G7 heads of state and the European Union in 1989 to counter money-laundering and financing of terrorism. The FATF has sponsored several initiatives whose impact will be felt beyond the specific goals of that organisation and significantly influence blockchain policy. Notably, it has issued a set of standards and binding regulations on the identification and transfer of virtual assets: crypto to cash or crypto to crypto. Initial calls from industry were for a self-regulatory regime but FATF resisted these.
- Trust is indispensable. The first step in establishing a workable, trustworthy regulatory regime is to define the problems it must solve and the uncertainties and ambiguities it must clarify. Speakers at the OECD Blockchain Forum did an excellent job of identifying these determining factors. Senior politicians, including France’s Minster of Finance Bruno Lemaire and high level officials from several national central banks spelled out their concerns about appropriate levels of control of cypto-currencies, and of the right rules for taxation of crypto-crypto transactions. Facebook’s Libra is helpful in this regard as it helps to garner real attention and focus.
- Data control remains a central focus. Blockchain, we know, outperforms other platforms on data tracking and privacy, but there are still massive uncertainties out there and big challenges involved in aligning blockchain with current laws on data protection. Nevertheless, there are lots of open questions: when control of data is distributed on the blockchain using immutable ledger technology, who is the data controller? How is data modified, corrected or erased in this environment? How are cross-border data transfers managed? As has been evidenced by recent Google lawsuits it seems Europe will continue to lead regulation in this space, and the United States will follow.
- New regulations are needed but will always lag behind. On the policy front, it is clear that while blockchain allows individuals to recover their agency from the hands of monopolist, dominant players, such as the banking sector, self-regulation will never be enough to secure sound governance or trusted and accepted standards for virtual asset service providers. Lots of thought is going into integrating new regulation with legacy issues such as:
-expense and slowness of traditional banking procedures
-competition from digital payment systems
-essential protections for private property and personal data
-traditional national currency sovereignty.
There’s nothing new about legislators and regulators struggling to play catch-up with technology-based products, services and markets. Stakeholder consultation has often been too little and too late. By contrast, at the OECD I was witnessing a really impressive coming together of committed participants, aware of the need to ensure good governance right from the start and capable of channeling their expertise and insight into the legislative process so that this comes about.
- Everyone sees real potential in social good and improved governance. Beyond banking and financial services, other speakers, particularly from the EU’s Joint research Centre, highlighted areas such as trade, supply chain management and delivery of public services, where sound regulation would be needed to ensure the transformative potential of Blockchain including two social good initiatives:
- A European Innovation Council Prize for “Blockchains for Social Good”;
- A Pilot project “DLT4Good: Co-creating a European Eco-System of DLTs for Social and Public Good”.
Additionally, presentations from Latin America and Kenya showed how blockchain offered solutions to problems endemic in these areas. The Kenyan presentation involved successful blockchain applications for highly centralised, governmental monopoly services such as land registry information, tracking and tracing of medicines to reduce counterfeits, financial support to drought-affected areas and reducing inefficiencies in food distribution.