RegTech Intelligence

US Order: Get your RegTech ready


Yesterday, President Biden fired the starting gun for the US regulators’ race to control Digital Assets. Crypto enthusiasts have been looking for regulators to take firm positions on whether digital assets race on Formula 1, NASCAR, or Motocross tracks. Regardless, it will be RegTech that is waving the chequered flags very soon. Join an all-star cast on 5 April for our virtual seminar to get ahead of the new race.

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Presidential Executive Order – 9 March 22

In what can only be considered the mother of all requests for proposal, the Order lays out the definitions and key issues which politicians and the Agencies need to address.

A concrete and comprehensive definition of terms can be found in the back but we enjoyed clarity on a host of new terms, including:

“The term “digital assets” refers to all CBDCs, regardless of the technology used, and to other representations of value, financial assets and instruments, or claims that are used to make payments or investments, or to transmit or exchange funds or the equivalent thereof, that are issued or represented in digital form through the use of distributed ledger technology.  For example, digital assets include cryptocurrencies, stablecoins, and CBDCs.  Regardless of the label used, a digital asset may be, among other things, a security, a commodity, a derivative, or other financial product.  Digital assets may be exchanged across digital asset trading platforms, including centralized and decentralized finance platforms, or through peer-to-peer technologies.”

The Order asks the enormous US financial infrastructure to get smart, be holistic, and move fast to protect its leading position in global finance while looking for new opportunities. A wide and deep list of interconnected agendas have been tabled, ownership assigned and deadlines given including:

  • Future of money and payment systems – Treasury
  • Legislative changes necessary for US CBDC – Attorney General
  • Digital asset FMI impact on Consumers, investors, businesses – Treasury
  • Regulatory infrastructure suitability for CBDC – CTO & Office of Science
  • Criminal activity related to digital assets – Attorney General
  • Investor and market protection from digital asset risks – SEC, CFTC, Fed, FDIC, OCC
  • Consensus mechanisms energy usage – Office of Science and Technology Policy.

It instructs agencies to produce policy recommendations over the next 180 days in consultation with peer organisations. The efforts will be coordinated through an interagency process established last year. Lobbyists will be challenged to cover the wide array of stakeholders from State, Treasury, Defence, Attorney General, Commerce, Labour, Energy, Homeland Security, Intelligence and 10 other members on the committee.

The International implications

Crypto experts, desperate for validation have welcomed the Order as it validates the asset class, however some raise concerns over international policy objective alignment and potential disruption the $3 Trillion market now faces. The Order recognises that technology-driven financial innovation requires international cooperation among public authorities. It promises to “elevate the importance of these topics and expand engagement with our critical international partners, including through fora such as the G7, G20, FATF, and FSB.”

This is welcome news to the global markets as FCA board minutes have revealed the UK is in the process of formulating its strategy to “play a more significant role in the regulation of crypto assets, including further regulations that may be needed to support the FCA’s limited existing powers.”

As we reported from our 5 April event research here, Germany and the EU are moving ahead at pace with  MiCA,  the e-securities act and tokenized fund law. This means that we will have 3 major financial markets moving in parallel to define digital approaches this year.

The RegTech Digital Asset implications

The implications from this Digital Asset conversation for RegTech are fundamental. Digital Asset compliance will need to be at least as good as it is for TradFi.

The studies will show that many of the compliance issues which confound digital assets are no simple matter. They will say we need to ensure the consumer is aware of the risks, that the digital integrity of the infrastructure needs to be secured, high-fidelity transparency is critical, digital supply chains need to be secured, and economic activity needs to be closely inspected to ensure bad actors do not circumvent the rules.

To make them safe, controls will need to be built into the blockchain, or as we like to put it, compliance will need to grow up and be tokenized. In some ways, this is the nirvana for RegTech: all-knowing oracles having validated rule sets making economic activity safe.

Those that don’t want to comply with the law and do bad things on their chains will simply be outlaws and the new crypto cops will go after them.

The compliance catch

The vast majority of the RegTech issues faced by Digital Asset are not new. AML, transparency, risk management – these are all topics which RegTech and SupTech has attempted to address over the past decade and which TradFi continues to be fined and encouraged to do better.

As readers of these pages will know, while some progress has been made, it has taken the community a long time to address core issues of beneficial ownership information, disambiguating obtuse legal texts so machines can produce reports, infrastructure controls, privacy enhancing technology, etc. In the complex system of finance across global rulebooks, there is no magic tech bullet for compliance – if there was, banking technologists would have deployed it a long time ago, breathed a sigh of relief and moved on.

The great thing about the Digital Asset discussion is that we may, at long last, have a window of opportunity for TradFi and Digital Asset Markets to unite behind future architectures for digital regulatory reporting, surveillance, cyber, AML and more.

Some say that we will struggle to achieve balance with so many cooks in the kitchen.  We say, bring them on. The more we have around the RegTech table, the more possible it is to affect change in this ‘perfect storm’ for compliance. Rule books are being opened up and the drafters are getting started. Why help get it right?

5 April seminar

JWG has assembled an all-star cast of speakers from legal, policy, operations, technology and compliance communities to cover

  • The state of global digital asset policy:  BIS, BVI, CMS, GDF
  • Protecting investors: ADGM, GDCA, Former FDIC, ING
  • Protecting the markets & FMI: B2C2, SWIFT, Zodia Custody
  • Managing risk: Credit Suisse, DTIF, Securrency, Loughborough University

Read more about the event here but by the time you read this, regulation will have changed.

The best part is that this Seminar is free for firms, regulators, trade associations and academics.

Come catch-up on the latest developments!

Register Here

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