Even though we are less than five weeks into 2021, it has already been a huge year for crypto.
Indeed, Bitcoin and many other cryptocurrencies hit new all-time highs since January 1st. Beyond that, events like the Capitol Riots and WallStreetBets’ Big Short Squeeze have changed the conversation around crypto.
Additionally, Janet Yellen, the treasury pick of the incoming Biden administration in the United States, has already raised concerns about how crypto is being used, and how regulators need to consider stepping up their game. Therefore, even though 2020 was a huge year for crypto regulation in the US and abroad, 2021 could be even bigger.
Finance Magnates recently sat down with Jackson Mueller, Director of Policy and Government Relations at Securrency, to speak about the future of cryptocurrency regulations in the US and internationally. Jackson is a specialist in government affairs and advocacy, public policy, financial services and financial technology (FinTech) who has worked in the industry for more than 10 years.
Bridging a Fragmented Regulatory and Technological World
First of all, what is Securrency?
“We consider ourselves both a fintech and a regtech company,” Jackson explained. “We’re building technology that enables institutional adoption in the digital asset space, but at the same time, we’re enabling regulators to effectively oversee the market in a responsible matter.”
“As much as we’re providing the rails that allow for institutional adoption in this space, we’re also coordinating and engaging with a number of regulatory bodies on compliance in the digital asset space.”
“When you look at some of the challenges in the digital assets space from an interoperability perspective, the question is, ‘how do you get some of these various infrastructures, both new and legacy, to talk to each other?”
“In addition to that, on the compliance side, there are different regulatory jurisdictions out there that are focused in some way, shape, or form on the digital asset space; they have different compliance regimes for securities regulations; there’s a lack of harmony. So, how do you bridge that?” Jackson said.
This is what Securrency is working to address: “Without going into the technical specifics of what we do, we’ve built a policy engine and a compliance oracle that really provides users with an intuitive way to codify multi-jurisdictional regulations.”
“In addition to that, we build smart contracts that are really capable of determining not only whether a particular transaction can take place, and not only whether it’s permissible or not, but whether it allows for instantaneous clearing across borders.”
As for technical interoperability, “the technology that we’re building also allows for that token to move both outside of its blockchain ecosystem and environment, but also across other distributed ledgers, and even non-blockchain environments without losing those compliance characteristics.”
In doing so, “we’re building a global liquid environment that allows for the movement of all sorts of value across various infrastructures, and really allows greater access to liquidity.”
“I Credit Brian Brooks for Keeping Me Employed in My Current Position.”
While regulations have affected the cryptocurrency industry on a deep level for years, there has been quite a bit of regulatory progress in the cryptocurrency arena within the last six to eight months. This has brought more legitimacy to the crypto space, and may have made the space more attractive to institutional investors as a result. However, increased regulations have presented new obstacles for companies to overcome.
“I credit Brian Brooks (Head of the Office of the Comptroller of the Currency, or OCC) for keeping me employed in my current position,” Jackson joked.
On a serious note, though, Jackson explained that “what Brian did over the last several months is pretty remarkable, especially coming out of a regulatory body that was headed by Tom Curry years ago, I remember when they were just starting to wade into this space, and just starting to figure out what needs to happen from a regulatory policy perspective; they were setting the frameworks by which the OCC was going to move forward.”
Now, “you have Brian, who’s just sort of hitting the ‘go’ button…’let’s go, let’s put it out there.’”
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And indeed, since Mr. Brooks stepped into his position at the OCC, there has been major regulatory progress in the way of the digital assets space. However, “the beauty of the US, well, perhaps it may not be so beautiful to some firms, is that there are so many regulatory authorities in this space.”
Therefore, “if it’s not Brian Brooks putting out stuff, it’s the Securities and Exchange Commission (SEC) putting together some guidance or request for comment.” For example, the SEC recently put out a request for commentary on custody for special purpose broker-dealers.
Additionally, there is quite a bit that has been happening with state regulators: “you can take a look at what Wyoming is doing with its SPDI (Special Purpose Depository Institution) license, and that framework; New York has its BitLicense framework.”
(In other words, there is a lot going on.)
“It’s been really interesting because everyone is actively involved and engaged, and that’s certainly a positive for this industry: you’re getting much more, especially through the various innovation arms from both state and federal regulators.”
“Within the Last Year, Just about Every Central Bank Has Decided That They Need to Put Out a Report” on the Viability of CBDCs.
Moreover, Jackson noted the rise in prominence of fintech-focused regulatory offices in the United States.
“The SEC has FinHub, the OCC’s got its fintech office; you’ve seen a lot of movement out of the Commodity Futures Trading Commission (CFTC) regarding DeFi,” Jackson said. “The elevation of these innovative arms to standalone offices is a huge positive for this space.”
Indeed, “instead of operating as little cogs within big organizations, the heads of these offices are basically sitting right next to the Chairmen of these regulatory bodies.”
Additionally, “outside of the US, from an international perspective, you’re seeing a lot of multilateral developments, particularly on stablecoins and central bank digital currencies (CBDCs); it seems that within the last year, just about every central bank has decided that they need to put out a report” on the viability of CBDCs.
Furthermore, there have been some regulatory developments that crypto hopefuls may find hair-raising, including the current digital asset ban bill that is making its way through India’s legal system. However, Jackson explained that the progress that regulators have made on “how they view different types of assets in this space, and how they are going to approach them” is “a net positive” for the space.
“I think you’re going to see even grander policy and regulatory developments,” he continued. These include the European Union’s markets and crypto-assets regime that is currently in progress, as well as the UK’s recently-announced crypto-asset framework.
Also Jackson pointed out that “it’s been interesting to see that more and more regulatory bodies are engaging in pilot efforts as well, not just focusing on the crypto side of things, but also in terms of what Distributed Ledger Technology (DLT) means for various financial sector issues, and how we can create a more efficient and responsive system that can actually improve costs and create greater access.”
What Is Next for the US?
And Jackson predicts that there is much more regulation to come in the near future, particularly within the United States.
“Given that the Biden administration has recently moved in, I would argue that there’s going to be a lot of focus on the policy angle, at least in the beginning,” Jackson said. Specifically, on “AML and KYC activity as it relates to crypto.”
Jackson explained that the reason for this may have something to do with the events that took place in Washington on January 6th. Specifically, he cited a Chainalysis blog post that “connected the dots between some of the individuals that stormed the capital and some of the cryptocurrency that they were able to receive.”
Chainalysis’s findings made rounds through a number of high-profile publications. As such, “there’s going to be a big emphasis in the beginning on whether or not the US will need even more enhanced KYC and AML on this type of activity.”
“Given what has happened, and given the fact that other jurisdictions are enhancing their AML and KYC regime, and then, on top of that, what Janet Yellen recently said during a recent Senate Finance Committee hearing, there’s going to be some significant efforts on the KYC/AML front, at least for the immediate future.”
In the medium- and longer-term, Jackson said that “you’re likely to get the reintroduction of the STABLE Act,” a CBDC- and stablecoin-focused piece of legislation that “said that only depository institutions are allowed to issue stablecoins or other fixed-value products.”
However, “in addition to that, I think you’re going to see greater activity as it relates to…existing technology that can help regulators and policymakers bring greater transparency to this space.”