By Mike Castiglione, Director of Regulatory Affairs, Digital Assets, Event
Crypto policy debates are often depicted as warring sides fighting over values. Not unique to crypto, policy-making is almost always an exercise in identifying and balancing trade-offs. Common policy compromises are:
- Individual rights versus common good
- Innovation vs Security
- Continuity vs new paradigms
- Protecting the Downsides Against Capturing the Upsides
The tension is giving up something to gain another. Yet there is one element, a variable, that gives more options. And that’s technology. In economics, technology pushes the frontier curve outwards. In business, this opens up new markets. In politics, this can make several constituencies happy. And when it comes to regulations, technology allows us to achieve safety goals without stifling innovation.
Of course, technology requires wise decisions and skillful application. But when it works, it empowers and makes difficult decisions easier. So where is the technology in crypto regulation?
A crypto upgrade
Technology should be at the heart of the crypto policy debate. Crypto itself is a technology – Layer 1 and Layer 2 blockchains, dApps, zk-SNARKS, other pieces of engineering – make distributed networks work in practice. Yet crypto technology also includes the supporting capabilities that make it useful to more people in the long run. Today’s Internet required antivirus, two-factor authentication, encryption, and penetration testing. Likewise, a new suite of technologies are available to give crypto an upgrade in trust and security.
Eventus is part of this ecosystem with commerce monitoring that detects fraudulent transactions and transaction monitoring to help businesses manage financial risk. This supportive tech universe includes blockchain analytics for financial crime investigations, code audits to ensure smart contracts work as intended, and custodial services to secure private keys.
Decision makers who are aware of these support capabilities learn that they have extensive options. They can opt for more flexible and principle-based regulations instead of having to list specific rules. And they can rely on self-regulated private organizations. Companies that use this supportive compliance technology can grow their business with confidence and transparency and send a strong positive signal to customers and regulators.
Navigating regulatory uncertainty
For crypto, there is regulatory clarity on anti-money laundering (AML) and, in major jurisdictions, the need to monitor platforms for abusive transactions. Pending EU Crypto Asset Markets (MiCA) regulations, as well as rules in Abu Dhabi, Dubai, hong kong, and the crypto-friendly Bahamas all require monitoring for market abuse. Most bills or rules in the US, UK and Australia include some form of market surveillance.
Yet the rules are still being written. Since crypto is an emerging industry, we will be operating in regulatory uncertainty for the foreseeable future, even if basic legislation is passed in the United States. When I served in the CIA, we often faced ambiguity and had to make thoughtful, measured decisions in the dark. The reality is that in the face of uncertainty, a strategy, whether commercial or national security, must plan for a range of scenarios.
So the best way to operate now is to focus on what is controllable. A simple framework to follow is People, Process, Technology.
- People: Look for experienced talent adaptable enough to apply lessons from other asset classes to crypto. They can bridge cultural gaps between crypto, financial institutions, and regulators.
- Process: Create compliance habits, such as performing market abuse risk assessments and creating internal standards for due diligence, documentation, escalation and reporting of market abuse cases. Much of what regulators are looking for is surprisingly process-based.
- Technology: As noted above, this is where the right software stack can unlock the ability to monitor data to stay ahead of potential issues.
If we fail to apply the expertise, processes, and compliance technology that works in other asset classes, the integrity of the crypto market will lag behind. Businesses, especially those that are innovative enough to move to crypto, are faster than politics and can make it happen.