Firstly, can you tell us about yourself and your background?
I am the executive director for Global Digital Finance, which is a members association facilitating the development of standards and best practices for the blockchain, crypto and digital assets industry through the creation of a global code of conduct. GDF is also a regulatory advocate for the community and we do policy outreach with global and regional policy makers.
Before moving into the digital assets industry, I spent 15 years in traditional financial services, predominantly within proposition development and communications, and working with innovation teams to identify use cases and new value propositions for the use of new and disruptive technology within transaction banking and capital markets.
How will regulation impact the crypto world?
To answer this, it’s first important to discuss terminology. ‘Crypto’ as a holistic description in the broad sense can be unhelpful from a regulatory perspective, because regulators are still trying to come to terms with what some of these definitions, tokens and services actually are and how they fit within their purviews.
There are many different types of tokens. So, if we think about tokens that might be considered money, i.e. payment tokens or cryptocurrencies, it’s important to define and clarify their behavioural characteristics with regulators before they can assess what licenses should be required. Should it be governed like money as a means of transacting? Can they be considered a store of value? The conversation is very different if we are talking about security tokens, or tokenised securities. Once a token is clearly defined as a security it falls into the existing and very clear securities rules.
Some tokens don’t always fit into a neat bucket, for example stablecoins. From a regulatory perspective, what is a stablecoin – is it just an asset backed token? Given it can be used as a transfer of value, should it be treated like a payment token, aka a cryptocurrency? How we define things becomes very important.
In the digital asset space today, we have a patchwork of different approaches to regulation, which continues to allow for regulatory arbitrage with businesses setting up in regulatory friendly jurisdictions. Meanwhile some jurisdictions are taking a ‘wait and see’ approach, which may be good for long term collaboration, but in the short-term leaves entrepreneurs in those jurisdictions with little or vague guidance.
In many industries regulation can be seen as an impediment to innovation. Today, the digital assets industry is faced with a lack of regulatory clarity globally. Digital and crypto assets are borderless, and longer-term global harmonisation and clarity around regulatory frameworks and global standards are really important. Articulating these evolving standards and best practices is one of the main aims of the GDF Code of Conduct.
Is education a key mandate of GDF?
Absolutely, I would say education is more than 50% of our role. Curating an informative community voice and advocating with policy makers means we are often involved in answering policy maker queries, providing input into regulator consultations and organising the GDF community to provide subject matter expertise.
As an example, recently the Financial Action Task Force (FATF) made some recommendations and issued a draft note that Virtual Asset Service providers (VASPs) should obtain and hold required and accurate originator information and required beneficiary information for virtual asset transfers (similar to a SWIFT transaction). There is no mechanism to store that information today (e.g. an IBANN) within a crypto transaction.
GDF is trying to help explain to policy makers what is and is not technically possible today and working with the industry to propose alternative ways of achieving the underlying goal to ensure compliance with the new FATF directives, which were announced on 21 June. GDF, along with a number of other industry associations, are convening the V20 Summit in Osaka at the end of June to bring the global Virtual Asset Service Providers together with FATF to discuss possible solutions to comply with the new guidance.
What are the advantages or disadvantages of cryptocurrencies being regulated?
We don’t regulate FIAT currency – we regulate the market actors that transact or deal with those currencies. It’s important to distinguish between regulating the markets and its actors versus regulating bitcoin itself or the underlying technology. We do need governance and guardrails within the marketplace and the ultimate purpose of regulation is to protect consumers and instil market integrity.
We need to take a risk-based approach when doing this – we don’t want market exchanges acting unfairly to the disadvantage of the consumer and we don’t want crypto being used for financial crime. We do want to establish principle-based frameworks focused on conduct rules and guidelines outlining the behaviour we do expect in a transparent, sustainable market.
What are the threats with crypto exchanges?
In my experience there are infinitely more good actors than questionable ones. However, the risks created by regulatory arbitrage allow for businesses to gravitate towards jurisdictions that are commercially beneficial for them. For example, if you move your business to a jurisdiction without a regulatory regime, you may not be required to have a full AML scheme in place, which could provide a significant saving on your operating costs. This also puts those ‘good actors’ who are conducting full KYC and supporting a robust AML regime at a commercial disadvantage.
To bring the risks of crypto into context, consider the complete market cap of crypto ($324,286,652,856 as of 22-June-2019) versus the potential amount of fiat money laundering activity. A few months ago, one single Danske bank branch in Estonia laundered an amount of money roughly equivalent to the entire market cap of crypto.
If exchanges are given clear guidelines, they have a chance
of achieving the desired regulatory and transparency outcome. If unbalanced
regulatory controls are forced upon exchanges, there is a risk that a greater
amount of transactions will occur peer to peer, which is even more difficult to
The industry also needs access to institutional
infrastructure. If you run a crypto business and no one will give you a bank
account, or the large correspondent banks impede your ability to bank, how can
we expect crypto businesses to work effectively within the existing financial
 Deutsche was one of several correspondent banks used by Danske’s Estonian branch, with the German lender clearing more than €160bn of potentially suspicious cross-border payments for the unit — many of them for Russian entities (https://www.ft.com/content/d537f416-7c71-11e9-81d2-f785092ab560)