In the highly individualized crypto market, regulation is what many parties have established and modified. However, many authorities worry about the market's abundance of bad actors. The market can be strengthened even more by launching management regulations.
This article recapped the discussion on "Regulations & Approaches to the Crypto Industry" from REDeFiNE TOMORROW 2023. Sirithida Phanomwan Na Ayutthaya, Assistant Governor of the Bank of Thailand, Sopnendu Mohanty, Chief Fintech Officer of the Monetary Authority of Singapore, Elisabeth Wallace, Associate Director, Strategy & Risk of The Dubai Financial Service Authority (DFSA), and Dante Disparte, Chief Strategy Officer & Head of Global Policy of Circle are among the four bank representatives from three nations, including Thailand, Singapore, and the United Arab Emirates.
Overview of the Financial Market
Regarding Thailand's situation, Ms. Sirithida noted that a wide range of industries were paying attention to blockchain and cryptocurrency technologies, which would eventually serve as the foundation for infrastructure, particularly in the financial services sector.
Bank of Thailand has worked with financial institutions to examine and test financial products and services, such as Cross-Identity Verification on Blockchain and Electronic Letters of Credit, which can cut down on errors and fraud by reducing processing time from days to a few minutes.
As evidenced by recent business models, startups and companies are also interested in cryptocurrencies. Bank of Thailand also values Programmable Payment, Asset Tokenization, and CBDC (Central Bank Digital Currency).
Singapore has made attempts to address people's financial issues, especially payment-related ones, but they have not succeeded. This left the financial sector essentially unchanged, which later presented difficult policy and legal issues.
However, Sopnendu believed that financial services had advanced in the past due to the fact that the Central Bank and supervisory authorities had begun to recognize the need for new forms of money in order to create better payment solutions.
Our current payment system has a few drawbacks, including high infrastructure costs. Sopnendo demonstrated his success in 2018 when he and his team connected the domestic payment systems and international payment systems between Thailand and Singapore, enabling them to conduct transactions immediately while cutting transaction costs by 4-5%.
According to Sopnendo, a digital currency that enables seamless transactions is the answer to this issue. He also emphasized the issue of asset ownership, which still requires a middleman and ownership verification through the signing of property transfer documents. He reasoned that using a traditional method to transfer assets would not be possible if we wanted to transfer them right away, but using a blockchain system and cryptocurrency might.
The United Arab Emirates
Elisabeth described the work she and her team had done over the previous four to five years. She said that they had started regulations for the cryptocurrency industry in DIC (Dubai Internet City) because they wanted to see good actors. This regulation would concentrate on conflict of interest and custody because most cryptocurrency businesses typically had similar interests to businesses in related industries.
She said that after presenting the framework last November, she is now in the process of granting licenses to various organizations. The new business model is still subject to limitations, which makes it more difficult because it requires a monitoring strategy that is distinct from the one used by the existing business model.
Problems and solutions
Money laundering and financial instability may concern the nation's Central Bank. Ms. Sirithida believes that investor protection and cyber security should be the main areas of focus in terms of supervisory responsibilities.
Thailand had set up a sandbox with the assistance of the Bank of Thailand and other financial service providers, allowing regulators to observe the workings of the service providers. Following the exit of sandbox service providers, supervisory regulations emerged to provide a path for those companies.
The United Arab Emirates
Elisabeth focused on bad actors because businesses that were bad actors had received a lot of attention the previous year. It is essential to have supervisory regulations in place in order to create market balance.
Similar to Thailand, Dubai claimed that regulations helped set up the market while sandboxes gave businesses a path to follow.
Furthermore, she advocated for increased communication between national supervisory authorities because the crypto industry frequently employs a global service model. As a result, the law has numerous gaps, and bad actors frequently take advantage of them.
Regulations had to be adjusted constantly because the cryptocurrency industry was growing exponentially. In Dubai, she said, rules that had been implemented the year before might be improved this year.
Explore Five-layer Regulatory Framework
The five-layer regulatory framework was described by Sopnendu as follows.
- Know your customers. Understand customers and the groundwork of every business.
- Consumer protection. When a company joins a network, it must ensure that its customers will be protected.
- Market integrity. Businesses must be good actors in the market.
- Systematic race and Access stability. The company's goods and services are reliable and affect the ecosystem's financial stability.
- Technology risk management. Another difficulty is technology, particularly new technology, which has problems with security and interoperability.
According to Sopnendu, any business that looked at these five frameworks would discover their ideal solution. If they controlled all of these elements, it indicated that they were prepared to increase the size of their business. In fact, very few companies can possess all of five frameworks.
Sopnendu believed that all parties were researchedsocial impact issues at the time through projects and activities undertaken by the public and private sectors. For example, in a sandbox, supervisory authorities looked at how businesses were run and made an effort to comprehend technology and use cases in order to design effective supervision.
Supervisory authorities cannot ignore AML/KYC regulations and consumer protection, which are serious and have a significant impact on business. This is due to the fact that all parties involved still do not fully comprehend the crypto industry.
Importance of Regulatory Sandbox
As stated by Ms. Sirithida, her work over the previous four to five years resulted in the launch of products and services through sandbox projects like Letters of Guarantee on Blockchain and Biometric facial recognition.
She expressed the opinion that the sandbox was another area where relevant authorities and businesses could exchange knowledge to establish compatible business models and supervisory guidelines.
Elisabeth from Dubai claimed that a regulatory sandbox was a place where businesses and supervisory authorities could learn from one another, unintentionally leading to a dual-purpose sandbox.
She continued by saying that while Dubai was making an effort to be technology neutral, it had not yet achieved this goal because further study was needed. With more modern tools and technologies, they could now monitor areas that the authorities had prohibited.
We can see that businesses and regulatory agencies are both making more progress in their understanding and creation of regulations.
Rules for RegTech in each country.
Before delving into the details, Dante mentioned the context of Regtech, noting that many nations were utilizing this technology; as an example, New York had implemented RegTech with real-time regulatory reports.
Sopnendu stated that at the time, many institutes used RegTech to manage operations and collect information in order to determine whether there was current risk or potential risk in the future.
He believed that compared to blockchain, RegTech might not be as effective and compatible with the financial industry. However, more research is needed in this area.
Dante continued by stating that this was extremely fascinating because the financial system had begun to change into a peer-to-peer system. It could lower the limits, like those found in international transactions, which, in his opinion, is good for a payment system. Therefore, the issues that occurred in the traditional financial industry could be lessened by the development of technology and innovation in the world of cryptocurrencies.
Progress on CBDC (Central Bank Digital Currency)
Regarding the overview in Dubai, Elisabeth mentioned that CBDC was in the research stage, The Central Bank of the UAE was running a pilot project, and it was interested in stablecoins.
According to Ms. Sirithida, Thailand considers CBDC to be beneficial, particularly for international transactions. It was working with the Hong Kong Monetary Authority, the People's Bank of China's Digital Currency Institute, and the Central Bank of the UAE to launch international financial products, which were at the time in the experimental stage.
Sopnendu described the bank's financial structure as a shifting monetary stack. He added that
- M0 Cash would be replaced by CBDC
- M1 Deposit would be changed to a tokenized deposit
- M2 and M3 would be available as stablecoins backed by assets and regulations.
We would respond that the asset required ownership with a reliable transfer method and needed affordable guidelines if someone asked us why we needed a new monetary stack. Cryptocurrency would be an intriguing solution, and the Central Bank needs to develop financial options for consumers and other financial institutions in order to develop a more robust cryptocurrency market than in the previous three to four years.
Cooperation on regulation in every country
Elisabeth concluded that international cooperation on regulation might not take place in a way that considered all factors. Only a few components could be made to conform. She anticipated that the situation would improve the following year.
She felt that in addition to regulation engagement, we also needed regulation harmonization. The fact that the cryptocurrency market was open around the clock and expanding every day meant we needed to understand it from more angles. We were expected to move faster.
View all the details on YouTube at Regulations & Approaches to the Crypto Industry