Blockchain technology should be regulated as data rather than a financial instrument, according to a panel of lawyers and political consultants at a Blockchain Week conference in London today.
Panelists also said that smart contracts represent the future of financial services regulation.
“We need to stop considering blockchain as a financial technology; we need to start looking at blockchain as a data-driven technology, as a digital uniqueness technology, ”said Lee Schneider, general counsel for the block.in blockchain solution.
“We have to tell ourselves – what are the functions and features of this particular digital element? And this is how we should regulate it. If it’s a security, let’s regulate it like a security, but I don’t want my identity to be regulated as if it were a financial instrument… Nobody thinks that identity is a financial instrument. “
Schneider criticized the US practice of applying the 1946 Supreme Court case, SEC v Howey, a case that defined investment contracts, to blockchain and distributed ledger (DLT) technology companies. Securities and Exchange Commission (SEC) Commissioner Hester Pierce also condemned the practice.
“What we have lost sight of in the United States and I think more generally on a global scale in a rush to financialize everything is this idea that digital assets do not need to be financial instruments… We need lawyers and regulators to do what they have done through the ages, look at it, figure out what its legal packaging is and don’t judge it by its technological packaging or any other packaging, “said Scheider .
John Salmon, technology partner at Hogan Lovells, agreed, adding that much of the regulation in financial services can be applied to the digital asset space, but there is still a small proportion that needs to be changed.
“Technologists are not policy writers and policy writers are not technologists, and they do not speak the same language,” said Loretta Joseph, consultant, Government Affairs at Medici Ventures. She criticized a culture of miscommunication between the two parties.
The nature of financial regulation itself has been questioned, Joseph declaring that the blockchain would likely provide future infrastructure for regulators.
“I think it is the greatest candidate for regulation, the ability to codify regulation.”
Salmon agreed, adding that a smart contract could provide regulators with the ability to instantly see when a company is not following regulations.
“That made [regulators] active participants in the ecosystem, which is important, ”said Schneider. He referred to a September 2019 Bank of International Settlements (BIS) document on integrated supervision. The document argued that the DLT offers a compliance framework that is automatically checked by reading the general ledger of the market, which which reduces the need for companies to actively collect and verify data.
While panelists agreed that smart contracts and codified regulation hold great promise, the decentralized aspect of blockchain remains an obstacle to creating a global standard of practice.
“One of the biggest challenges we face is that blockchain technology is global in nature and especially when it comes to decentralized blockchain, you have people from all over the world participating in it and idea that you have to take into account the American regulations for the American knots, you have to take into account the British regulations for the British knots, etc., “said Schneider.
“It’s just impossible and it will never happen. And if governments want to regulate it, what they have to do is they have to come together. ”
Blockchain technology should be regulated as data rather than a financial instrument, according to a panel of lawyers and political consultants at a Blockchain Week conference in London today.
Panelists also said that smart contracts represent the future of financial services regulation.
“We need to stop considering blockchain as a financial technology; we need to start looking at blockchain as a data-driven technology, as a digital uniqueness technology, ”said Lee Schneider, general counsel for the block.in blockchain solution.
“We have to tell ourselves – what are the functions and features of this particular digital element? And this is how we should regulate it. If it’s a security, let’s regulate it like a security, but I don’t want my identity to be regulated as if it were a financial instrument… Nobody thinks that identity is a financial instrument. “
Schneider criticized the US practice of applying the 1946 Supreme Court case, SEC v Howey, a case that defined investment contracts, to blockchain and distributed ledger (DLT) technology companies. Securities and Exchange Commission (SEC) Commissioner Hester Pierce also condemned the practice.
“What we have lost sight of in the United States and I think more generally on a global scale in a rush to financialize everything is this idea that digital assets do not need to be financial instruments… We need lawyers and regulators to do what they have done through the ages, look at it, figure out what its legal packaging is and don’t judge it by its technological packaging or any other packaging, “said Scheider .
John Salmon, technology partner at Hogan Lovells, agreed, adding that much of the regulation in financial services can be applied to the digital asset space, but there is still a small proportion that needs to be changed.
“Technologists are not policy writers and policy writers are not technologists, and they do not speak the same language,” said Loretta Joseph, consultant, Government Affairs at Medici Ventures. She criticized a culture of miscommunication between the two parties.
The nature of financial regulation itself has been questioned, Joseph declaring that the blockchain would likely provide future infrastructure for regulators.
“I think it is the greatest candidate for regulation, the ability to codify regulation.”
Salmon agreed, adding that a smart contract could provide regulators with the ability to instantly see when a company is not following regulations.
“That made [regulators] active participants in the ecosystem, which is important, ”said Schneider. He referred to a September 2019 Bank of International Settlements (BIS) document on integrated supervision. The document argued that the DLT offers a compliance framework that is automatically checked by reading the general ledger of the market, which which reduces the need for companies to actively collect and verify data.
While panelists agreed that smart contracts and codified regulation hold great promise, the decentralized aspect of blockchain remains an obstacle to creating a global standard of practice.
“One of the biggest challenges we face is that blockchain technology is global in nature and especially when it comes to decentralized blockchain, you have people from all over the world participating in it and idea that you have to take into account the American regulations for the American knots, you have to take into account the British regulations for the British knots, etc., “said Schneider.
“It’s just impossible and it will never happen. And if governments want to regulate it, what they have to do is they have to come together. ”