Many people out there are coming to realize that existing laws and regulations directly affect their lives and careers, whatever industry it lies into. While Crypto and Blockchain become a more significant part of the global business field, and more people are becoming involved in this system, the importance of sufficient and adequate regulations for this sector grows inevitably.
It’s 2019, and the Blockchain technology is around for quite a while: it’s time for lawmakers to start developing and sorting out the global legal framework. What challenges are there to solve, what steps to take?
Geographical decentralization, as well as the problems caused by it, create one good question — will the regulators finally gather up and work together in the foreseeable future in order to provide sufficient regulatory framework for the Blockchain ecosystem? This matter is not a new one — the experts were talking about such a collaborative approach in the last year as well:
“What we see now is a lack of alignment. The Blockchain universe is getting more and more diverse, and I think […] aligned again and walk in one direction and then it will become meaningful and powerful. Currently, I can’t really see that, unfortunately”.
– Dr. Nina-Luisa Siedler, Member of the “Blockchain Policy and Framework Conditions” at EU Blockchain Observatory and Forum; BlockShow Americas 2018
It’s really interesting and illustrative that this thought was expressed by the representative of EU Blockchain Observatory & Forum directly connected to the EU Blockchain Partnership. In fact, some organizations have already united their forces under the mission of creating proper Blockchain regulations; for instance, the joint activities of Financial Stability Board, Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO), and the Basel Committee on Banking Supervision (BCBS), all initiated by the G20 Ministers of Finance and Central Bank Governors, are definitely worth noting.
However, it doesn’t mean there are no challenges in the way of such a practice. First of all, the difference in approaches and commitment level between different jurisdictions is practically inevitable. Secondly, let’s admit it: despite the fact that state-level collaborations (like one that was mentioned above) really exist and manage to be efficient in their own way, this is still not enough in the global perspective. Besides, the worldwide situation is too variable; while some countries are being really open to innovations and all the changes within the industry, the others — even being ones of the potentially big ecosystem players — stay hostile and restrictive, impeding on the progress. Will things change in 2019? Let’s just wait and see. Right now, it’s only one thing that is clear — to postpone the development of the global Blockchain regulation field, these changes should happen as soon as possible.
SEC, you gotta make your move
It turns out to be really typical for regulators worldwide to keep constantly looking at each other instead of actually doing something — especially when it comes to harnessing innovations like Crypto and Blockchain. It was also mentioned during the session “Law is the Key: How Proper Regulatory Development Can Lead us to the Blockchain Future”, when Cal Evans, Board Member The British Blockchain Association stated that “everybody is almost taking a wait-and-see approach, and they’re keen to find out what’s happening in different jurisdictions”. If we take this as a fact, we soon realize that one of the main ‘role models’ here is the USA, more particularly — the SEC. Here we also have another analogy on our minds, made by Dr. Daniel Diemers at the panel titled “Global Blockchain Regulations: What Changes are Coming?” during BlockShow Europe 2018. Back then, comparing the whole global Blockchain ecosystem to the Wild West, he stated the following:
“At the moment we have three kinds of ‘Wild West’: the US […] was pretty quiet, not a lot happening […] but since recently the ‘sheriff’ is in town and the town is up for business.”
– Dr. Daniel Diemers, Member of the Blockchain Taskforce of the Swiss Federal Council; BlockShow Europe 2018
The ‘sheriff’ in this whole metaphor is obviously the SEC. However, despite all the influence the institution has on the international legal framework, it’s not a secret that the things are still moving really slow. Sure, technically the SEC is not a regulator: it doesn’t create any laws itself, but it keeps publishing official guidance regarding various aspects of the industry; this very guidance often sets all the vital goals and milestones, which the ecosystem relies upon.
So, our point is that in 2019 the SEC will have to deliver its statement, clear and unambiguous, which not only would encourage the major actors to make their actions but will also take its place as a basis for ‘healthy’ Blockchain regulations.
Figure the ICO out
There’s no doubt that ICO is still one of (if not the most) controversial matters among the global regulators. While some governments are actively moving towards embracing crowdsales (and some of those were mentioned in one of our previous posts), the other ones are unconditionally banning this practice. Indeed, there are some noticeable issues: the borderless essence of Blockchain produces numerous possibilities for fraudulent activities through ICO mechanisms, but experts believe (and the common sense tells us) that this fact shouldn’t become a serious barrier for the lawmakers worldwide. “If [ the criminal use of Blockchain] is on [regulators’] mind first, we need to pass that border, we need to cross that bridge.” — Dr. Daniel Diemers stated at BlockShow Europe 2018, and it’s hard not to agree with him.
Currently, one can point out two basic ICO approaches which the regulators are trying to implement in different jurisdictions; while the inclusive approach, which considers ICO as one of the existing asset classes, is easier for governments to utilize, the ‘new’ one, on the contrary, sees ICO tokens as a completely new class of crypto assets.
Of course, both of those has their own advantages and weaknesses. Thus, the bad thing about the first one is the fact that the existing asset regulations are too harsh for the majority of companies, as well as associated with high costs, which automatically cuts this opportunity off for many emerging companies, even making it a challenge for them to enter the market. Of course, there are some benefits, too: being mostly customer-oriented, the existing regulations provide really strong protection to this party. Besides, the inclusive approach is creating a kind of a “natural selection” within the ICO field, which considered a positive tendency among some experts (especially when it comes to ICO agnostics and those criticizing the market overflow).
On the other hand, most of the problems mentioned above can be solved with a new regulatory approach, which is to make ICO tokens a completely new and separate asset class. It will work especially great if the regulators want to be supportive of the ICO sector by fostering new promising projects and providing access to this fundraising method. However, such a state of affairs isn’t perfect as well: current laws on anti-fraud and customer protection will have to undergo some transformations and be tailored to the changing reality, especially since this new favorable environment might trigger an intense inflow of fraudulent projects to the market.
Obviously, none of these two systems are perfect and fully efficient: so what should regulators do? Creating a new, hybrid approach may solve the case. The ICO phenomenon becomes more and more visible and important in today’s business agenda, so it’s clear that there is no sense in trying to ignore this problem or to ban ICO at all.
Despite the skeptics’ forecasts, ICO as a common practice is still here, which means that soon global regulators will have to make a move — they simply don’t have a choice. In our previous material, we already mentioned that countries like Bermuda and UAE are preparing ICO regulations to be published in 2019. Who knows, maybe other governments will see and follow the example?