The future of global crypto regulation is set to fall into the spotlight at Davos this week as regulators and policy makers scramble to shore up the industry in the wake of FTX’s collapse last year.
The failure of FTX, founded by disgraced former billionaire Sam Bankman-Fried, has lit a fire under the push for tailored rules for the market, after customers were left billions of dollars out of pocket and its leadership team were slapped with charges of defrauding investors.
A host of crypto chiefs are now set to take to the stage for the World Economic Forum in Davos to debate the future of crypto rules including the boss of blockchain and crypto firm Ripple, Brad Garlinghouse, who will appear alongside regulatory officials including Netherlands central bank chief Klaas Knot and European Commissioner for financial stability Mairead McGuinness.
Jeremy Allaire, the chief and co-founder of Circle – best known as the issuer of the USDC stablecoin – will also debate the future of tokenisation alongside a Finnish government official and other crypto bosses.
But what can we expect from the debate?
Regulatory analysts at KPMG told City A.M. today that discussions will likely hone in on how to draw up rules for the trading of crypto assets and the integration of blockchain technology into traditional financial services.
“Many [attendees] will be discussing if, and how, the trading and investments in crypto assets should be regulated. Some participants will be looking for the cryptoasset industry to comply with a very similar set of regulations as the existing traditional finance industry,” Kate Dawson, sector lead of capital markets at KPMG UK’s Regulatory Insight Centre told City A.M.
“Others will argue that crypto is different and that issues with some centralised entities should not taint the potential offered by self-executing decentralised finance (DeFi) applications which are likely to need a different form of regulation.
She added that the use of blockchain technology by traditional financial players was also likely to be high up the agenda.
“Davos participants will be discussing the use of blockchain technology. For example, how existing financial instruments and other real world assets can be represented and traded on the blockchain and how this could bring efficiencies and new investment opportunities,” she said.
Davos comes after a push from regulators to draw up rules in the past 12 months, with EU lawmakers announcing markets in crypto-assets (MiCA) rules which aim to establish “harmonised rules for crypto-assets at EU level”.
UK lawmakers have similarly been looking to move in on the sector with amendments to the Financial Services and Markets Bill
Crypto chiefs and lawyers told City A.M. today the debate over the next week must yield some action from regulators to help shield investors from future crises while allowing firms the freedom to innovate.
The hope is that Davos can be a forum to develop some practical work on crypto regulation,” Charles Kerrigan, a crypto and digital assets partner with law firm CMS told City A.M.. “This would involve regulating the international financial system, making a policy for DeFI and policing the dark web – all at the same time. It’s a substantial challenge.”
Ahead of Ripple chief Brad Garlinghouse’s appearance, the firm’s EMEA policy chief Andrew Whitworth told City A.M. he expected the discussion of the sector to be “nuanced” throughout the week
“There is a need for robust regulation – which most jurisdictions recognise and are working towards. This doesn’t mean starting from scratch,” he told City A.M.
“There’s a lot of traditional financial regulation that makes sense for crypto-asset regulation. Global coordination will also be extremely important to make sure there are no gaps between jurisdictions worldwide – something that can be fostered through events like the WEF Annual Meeting.”
Ripple, which expanded its presence in Europe late last year, warned MPs in November that “one size fits all” regulation would not shield investors.