The failures of SVB and Signature Bank put pressure on US banking regulators as concerns grew about short positions and future failures of mid-tier banks. Jamie Dimon, owner of JP Morgan, which advises and finances the struggling First Republic, blasted banking regulators in his annual letter to shareholders, saying it's "not over yet" and will haunt you for years. .
The downfall of SVB, the flagship of America's "West Coast" tech sector, looks like a Greek tragedy: the heroes who bankrolled America's corporate tech sector were brought down by a combination of luck and fortune to crown a new global race for digital space. unreliable management.
As fingerprints grow, the crypto industry fears there is growing evidence of a systemic anti-crypto agenda with Signature Bank. The crypto industry was somewhat poised for regulation in 2023 after the FTX crash, but the evidence of Operation Chokepoint 2.0 left crypto CxOs and lenders indifferent.
Georgetown University's Chris Brammer and others have published an upcoming article for the University of Southern California's law journal, "Defensive Regulation," outlining the pros and cons and basics of agency leadership. As politicians grapple with the issue, the push for regulation through the introduction of new digital industries aimed at transforming the economy and improving people's relationship with money is short-sighted.
Often, the speed of digital innovation driven by large capital investments makes implementation difficult, including for regulators who are not digitally literate and only have one set of tools to implement within their mandate. To capitalists, regulation smacks of the Deep State and questions whether the agency's motives are truly in the public interest.
Empirically, most citizens of (democratic) societies expect fair and competitive markets, which is an advantage for the regulator.
The king of digital innovation for politicians?
The UK Financial Services and Markets Bill is the biggest new legislation for the financial services industry in 30 years and will bring about profound changes. The bill is now in the Upper House, the House of Lords, and is expected to come into force in late spring 2023.
The draft law includes the implementation of the results of the review of the future regulatory framework and the establishment of a regime for the regulation of stable currencies and crypto-assets and the protection of access to money.
It also includes proposals to give the UK Treasury the ability to create financial market infrastructure sandboxes to allow new digital technologies to be tested and adopted by removing, modifying or even temporarily applying certain rules for purposes certain - the creation of a "safe haven". a page from the SEC commissioner. The part proposed by Pierce.
Equally important, the bill proposes to expand the competition regulator's mandate to include "international competition" and "growth". The surprisingly innovative nature of this mandate for a conduct regulator is coupled with politicians' fears of giving the regulator such broad powers without checks and balances accountable to politicians in parliament.
Lord Holmes of Richmond is supporting an amendment to the Bill which proposes the creation of an Accounts Receivable Authority, an experienced, independent and statutory advisory body which will operate within a mandate set by the Government and submitted to Parliament.
Holmes said: “The current draft gives sweeping new powers to repatriated EU regulators without any meaningful proposals to make them more accountable in exercising these powers.
"We have seen that regulatory sandboxes can have a positive impact, and perhaps the best measure of success is the FCA's initial regulatory sandbox, which has been replicated in over 50 jurisdictions worldwide. . Digital Assets, DAO, AI , digital identity, cyber security, etc. makes sense for a sandbox.
"Better regulatory accountability and better parliamentary oversight are key to advancing this new era of digital innovation."
The Electronic Commerce Documents Bill, which has also passed the House of Lords, would ensure that digital documents have "the same legal status, power and functionality" as paper documents, provided they meet different criteria. The Bill provides a clear and effective approach to legislation and regulation, taking into account the speed, power and potential of new digital technologies.
With the Legislative Commission for England and Wales recognizing digital assets as a special class of "data objects", these bills are important in recognizing the public importance of new digital innovations in financial services.
Stanford techbro UK Prime Minister Rishi Sunak is leading the digital innovation effort alongside Andrew Griffith, Chancellor of the Exchequer and Minister for Cities, whose open and collaborative approach to industry was unprecedented before Brexit. The UK has a plan for digital innovation, digital regulation and digital legal rights to help transform its economy over the coming millennia.
It is not impossible
Last month, Blockchain Week in Paris became the most watched event on the planet, marking the "arrival" of France at the center of the European chain of digital innovation. Circle, Binance and Crypto.com have chosen Paris as their European headquarters. France has also emerged as a post-Brexit European winner in the banking sector, with Goldman Sachs, Bank of America, Deutsche Bank and Citigroup expanding their presence in Paris, strengthening the European banking landscape.
As global banks and asset managers anticipate trillions of dollars of tokenization of real assets such as securities, a fully dematerialized French bond market that requires neither wet ink nor paper will lead to the issuance of digital bonds in short term. The European Investment Bank is leading the issuance of digital bonds, and at the heart of these projects are a number of innovative French banks, including BNP Paribas and Société Générale.
The burden of innovation in France is largely borne by industry, working with politicians ranging from Prime Minister Emmanuel Macron to digital minister Jean-Noël Barrault, as well as regulators from the Banque de France, AMF (conduct) and ACPR (prudence). plays a very active role in policy and regulatory development with significant industry participation.
In a discussion paper published in March, the ACPR hinted that DeFi could be regulated in Europe under a future version of MiCA. DeFi is not included in MiCA's innovative framework, but it is one of the first areas to be considered after its expected approval by lawmakers this month.
The document proposes that certain EU-registered DeFi protocols (native stablecoins) be considered intermediaries under the MCA as issuers of electronic money tokens, and also proposes a certification scheme for smart contracts for decentralized protocols (using non-native tokens). the product itself, without the need to designate a person who will be directly responsible for complying with this obligation.
In addition to MiCA, the DLT pilot regime is the second phase of two major legislative initiatives in Europe to regulate digital assets, with a market infrastructure pilot regime based on distributed ledger technology launched in March.
The pilot program (Safe Harbor) enables participating institutions to obtain temporary conditional authorization within the EU to offer DLT-based trading services and settlement systems to professional and retail clients in the secondary markets.
Following a vote on MICA in the European Parliament this month and approval by the Council in May, the regulation will enter into force in June with an 18-month transition period for implementation in 2024. The legislative process is trying to keep pace with industry. development.
MiCA is nothing short of a comprehensive legal framework for cryptocurrencies and digital assets that took three years from concept to launch and has been agreed in 27 countries – an impressive use case for policymakers.
Don't throw the baby out with the bath water
In January 2023, Bitcoin and the blockchain turned 14 years old. It is a native decentralized cryptocurrency protocol that has launched thousands of cryptocurrencies, digital assets, and infrastructure projects in industry, central banks, and government agencies, and embarked on a global journey into the next era of disruptive digital innovation in finance.
Thanks Satoshi, whoever you are, you should be nominated for the Nobel Prize.
In the 2023 Economic Report of the President released in March, cryptocurrencies and DLTs were relatively dismissive. "The economic benefit of DLT technology is limited," the report states. It's like saying in 1860 that "the economic benefit of the internal combustion engine is limited."
The statement smacks of neo-Luddism and misses the point because it ignores both the significant capital investment in DLT over the past 14 years by industry, central banks and governments, and the projected future value of economic benefits derived from employee benefits . and business activities. the transformation provided by technology.
In 1798, John Stevens built America's first internal combustion engine during the Industrial Revolution, and the first commercially successful engines were sold in Europe by the 1860s. The internal combustion engine is perhaps the most important invention in history, as due to the (effective) impact on the transformation of society and for its negative impact on the environment, which has significantly improved over time.
Almost 100 central bank digital currency (CBDC) projects are underway, 11 CBDCs are being launched, 18 are in the pilot phase, including the Central Bank of China, and projects are underway at the Bank of England, the European Central Bank and the US Federal Reserve. , mostly independent, but important government agencies seem strongly committed to the future of DLT.
Evidence of progressive policies and regulations regarding crypto digital assets and DLT from governments and agencies around the world is abundant: the Falcon economy in Dubai, Abu Dhabi and the United Arab Emirates; Singapore, Hong Kong, Seoul, Japan, Australia, Brazil, Nigeria and the list goes on are decentralized digital innovations operating at national and regional levels.
The report also shows that most cryptocurrencies lack fundamental value as Bitcoin once again finds support at $30,000. The market is the best judge of value and there is a lot of "smart money" in BTC - it has effectively become a "hedge against uncertainty".
The Bitcoin network may have the energy consumption profile of a small country (often compared to Denmark or New Zealand), but its market capitalization is twice the GDP of small countries. Moreover, 90% of bitcoins have already been mined, and as soon as the remaining 10% reaches the limit of 21 million bitcoins, miners will switch to transaction fees, which will positively affect the network's energy consumption.
Bitcoin's new gains have not come without constant attacks on blockchain power consumption with tokens due to the gap. Most agree that there is room for improvement and this is one area where clean and green political leadership can do better to support blockchain miners. The future of distributed ledger energy consumption is bright, with the Ethereum mainnet moving to a consensus method called Proof of Staking (PoS), which claims a 99.9% reduction in the energy consumption of the ledger infrastructure .
The report also contains very positive information. The United States added a record 12 million jobs, the strongest in two years. Black and Hispanic unemployment is near a 50-year high, and manufacturing jobs are recovering faster than in any economic cycle since 1953. With the global pandemic and inflation holding steady in the West, it is to congratulations.
The report's weak support for the future economic and strategic benefits of cryptocurrencies, digital assets and DLT seems tone deaf to a nation of capitalists who believe the United States is leading the digital space race and funding global markets for services.
This is especially true as mid-sized US banks and regulators struggle and there is much uncertainty in the regulation of crypto, digital assets and distributed ledgers due to a series of bankruptcies and ongoing regulations being enforced.
It should be noted that the SEC has just announced that it is considering filing an amendment to its January 2022 proposal that would require major trading platforms to comply with rules relevant to markets under applicable securities laws. (ATS regulations) and was considering the inclusion of communication protocols. cryptocurrency markets.
We might want to pay a little more attention to our poolside cousins. They thrive on building market infrastructure through industry collaboration rather than litigation, a practice that extends beyond the UK and Europe to the Middle East, Africa, Asia-Pacific and Latin America.