Regulatory Issues and Blockchain

It’s an interesting time, I think, for a
lot of these different technologies and we’ve talked about a few beyond
blockchain. Things like artificial intelligence where the technology has
outpaced the regulation. What is possible is
vastly greater than what is permitted in a lot of cases. And in a lot of other
cases, what is possible hasn’t even been considered by the regulators yet. So
certainly for the blockchain space, one of the areas that has had a lot of focus
is digital currencies. They’re very commonly referred to as cryptocurrencies, digital
currency is a sort of broader term that I think better encapsulates the
business uses to which they could be put. But certainly what you have seen is a
lot of regulators both global and national look at the potential uses for
cryptocurrencies. Like all technologies they can be used for good things, they
can be used for bad things. Some particular systems have been associated
with money laundering, with criminal usage, and that’s obviously something
that is not attractive both for its own sake but also to allow these
technologies to develop and mature and deliver the benefits that they can on
both a global and a national basis. So there have been a couple of developments, some very recent. So we’ve certainly seen countries like the US take a lead
on how regulation of cryptocurrencies should take place within the United
States framework. What we’re seeing now is more of a global focus. So the
Financial Action Task Force, which is the global regulator of financial services
in connection with money laundering, had a meeting in Paris in October 2018 and
it has come up with for the first time a set of requirements around including
what they call virtual assets service providers within the global
money-laundering framework. What that means is that the exchanges and other
providers that work with cryptocurrencies will now have to come within the
national framework for money laundering. There are a lot of places in the world
where actually that happens already. So in the EU, which is the area I work in
mostly, the 5th money laundering directive brought exchanges within that
already, but I think that is really just part of a broader trend. Regulators have
a couple of different issues to look at. I think we have seen certainly at Jones
Day is a really thoughtful consideration by a lot of regulators about these new
technologies and how to regulate them. So for example there are both positive and
negative benefits of using some of these technologies. The challenge for
regulators is how do you encourage the positive and how do you control the
negative. On a personal level I have to say I’ve been really heartened by the
sort of thought that regulators have put into that. So we’ve seen a number of
regulators including in Europe and in the U.S. creating regulatory sandboxes –
so what these are are places where people who want to use financial
technologies for financial products can go to that regulator and say we would
like to work within your system, we’re not totally compliant perhaps, and these
are the ways we’re not compliant – can we work within your sandbox for a short
period of time to prove to you that this is a technology use that you should find
acceptable. We’ve seen that in the UK, we’ve seen it in Australia, we’ve seen it
in the U.S. as well. So I think what you’re likely to see this year is an acceleration of
that trend – regulators looking at ways to control the bad actors whilst
encouraging the positive actors. But also more importantly, being increasingly
willing to make clear when activities, particularly business activities,
actually fall outside the scope of regulation.

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