Regulation should be top of the agenda for blockchain start-ups in the financial services sector, attendees of Blockchain Week heard.
Edan Yago, CEO and founder of Epiphyte Corporation, suggested that in blockchain and cryptocurrencies, regulation has been “maybe the most critical thing for us to think about”.
Hogan Lovells partner John Salmon used the internet as an example of how regulation of blockchain is likely to go.
When the internet was becoming more widely used, some believed it should be stringently regulated, while others argued it shouldn’t be regulated at all. Eventually, Salmon said, it emerged that “most of the laws and regulations that we already had could be applied to the internet”.
Existing rules will apply to blockchain, but new ones may need to be created, too. At present, it is difficult to predict “how exactly it will work”, Salmon said.
Another speaker, Richard Levin, shareholder at law firm Polsinelli, warned entrepreneurs that if they are not thinking about regulation at present, they “really ought to”.
Innovators in the financial services sector have a responsibility to try to help regulators understand what they’re working on. It’s important to “have the dialogue and try to shape the regulations that you will have to live with”, he said.
Salmon agreed with this, conceding that, although the industry can be critical of regulators, they have “quite a tough job”.
Financial services regulators have historically been concerned with the resilience of the financial system and protecting consumers, but now they also have to worry about maintaining competition and monitoring innovation.
Using the UK Financial Conduct Authority as an example, Salmon noted that the UK regulator has opened up and is willing to discuss new innovations. “We need to help them understand these things,” he said.
Levin suggested that engaging with regulators can even boost reputations. If a start-up is willing to be regulated, it begs the question of whether its competitors are too.
Making efforts to comply with applicable regulations sets a precedent for competitors. Levin said: “It’s not always a bad thing. It can give you a competitive advantage.”
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