The industry must work collectively to implement regulation and macro legislation in the digital assets markets, affirmed John Schindler, secretary general for the Financial Stability Board (FSB). It is not enough for individual bodies to be focused on security — a safe infrastructure needs to be put in place for all participants, he said, during City Week 2023’s ‘How to achieve internationally co-ordinated regulation of digital assets?’ panel.
There are three points that need to be addressed to achieve harmonised international regulation, Schindler said. Minimum international standards must be agreed on, this minimum set of standards should be implemented consistently across markets, and regulators must cooperate and coordinate their actions. Cryptoassets and stablecoins are currently the FSB’s focus, he added, as these are the most developed areas of the market.
When drafting new regulation, there must be an awareness of an upcoming digital technology paradigm shift, one panellist said. “You’re not drafting in a silo,” she added, with money being used in a new, digital form and underpinning a digital economy. Regulators must take the economics of data into account, she went on to say, and consider how data will behave both on and off the blockchain.
One speaker proposed that a global taxonomy for digital assets would aid transparent and credible growth in the sector, but that before this is achieved firms are operating in a “vacuum”.
Ian Johnston, chief executive at the Dubai Financial Services Authority (DFSA), stated that “it’s difficult to regulate something if you don’t agree on what it is,” suggesting that global standards will emerge from market activity and taxonomies will become key over time.
One speaker drew attention to current difficulties in the US markets, where unclear specifications, an absence of guidance from the SEC and a lack of clarity are being exploited by bad actors. He advocated for an encouragement rather than an enforcement approach, and stated that he was “very encouraged” by the UK’s regulatory efforts.
Although US regulators want legislation to be put in place, they cannot have market clarity without first having legal clarity, the panellist explained. This leaves the markets “stuck”, with political and legal barriers hindering progress. In contrast, he said, APAC is “lightyears ahead” in their legislation. CBDC and crypto regulation is already in place, and rules around digital assets and web3 are being discussed.
Johnston observed that in traditional finance, standards emerged over time after regulations were put in place. In this new market, the usual order is reversed, and standards are being established before regulations have been tested. Panellists concurred that agreeing on international standards will take time and collaboration, and will have to be regularly assessed to keep up with rapid industry change.
