While Bitcoin- the first cryptocurrency- was launched more than a decade ago, the crypto space remains largely the reservation of blockchain enthusiasts and fintech startups. Financial institutions have yet to totally tap into digital assets’ benefits because of the European Commission’s advice about digital innovation.
The Impact of Lack of a Clear Regulatory Framework
During the recent panel discussion on regulation at Swell 2020– the annual meeting of the world’s trusted leaders in the financial sector and blockchain technology- Peter Kerstens said:
“Regulated financial instruments tend to attract regulated financial institutions. The lack of a regulatory framework is, in my view, one of the reasons why we haven’t seen further development of this.”
South Africa appears to be one of the few countries that are making significant strides in regulating digital assets. However, South Africa’s Special Advisor to its Central Bank, Angela Itzikowitz, admitted to the panel that figuring out how cryptocurrencies fit with the current financial regulations is quite challenging.
“First we had to consider: was is it just a question of new wine in old bottles or should we go back to the drawing board?” she recalled. “Most of our legislation regulating assets or securities…requires a central issuer [which] is missing in the token or crypto space. A token can [also] change its nature. It may start as a utility token, but during its lifetime, it becomes a security token. So how do you regulate it?”
Commenting from Washington DC, the Blockchain Association’s Executive Director Kristen Smith acknowledged the perplexing nature of tokens added to digital assets’ gray regulatory nature in the US. However, she explained that the US regulators are steadily catching up.
“This is an ecosystem that has been evolving so quickly, and there are so many different uses of the technology,” explained Kristen. “As awareness and understanding of these different types of crypto assets are moving forwards, we’re starting to see some changes. We have a way to go here in the US, but… a couple of bills have been introduced recently that aim to distinguish between these different categories.”
Besides, the European Commission also understands the value of digital assets, particularly in next-generation payment systems’ potential to facilitate more financial inclusion. The regulations recommended by Peter Kerstens and his colleagues aim to boost this kind of innovation.
“Rather than apply our legislation in a negative way to ban activities,” he explained, “[we want] to create a regulatory framework that enables [innovation], but of course also…ensure market integrity, financial stability, and investor protection.”
The Introduction of CBDCs
The panelists agreed that digital assets’ real legitimacy would arise from Central Banks issuing their digital currencies. Angela Itzikowitz is currently guiding South Africa’s Central Bank on what it requires to release a digital rand. Contrary, Kristen Smith revealed that the US is a long way off having a digital dollar. But as the moderator. Accenture’s Ousemene Mandeng advocated that the issuance of Central Bank Digital Currencies (CBDCs) could significantly impact the crypto industry.
“Central banks that are now moving into the tokenized world with the possible adoption of CBDC…could change perceptions…it will lend credibility and legitimacy to this space… I’m very enthusiastic.”
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