Earlier this week, I covered my keynote from Digital Assets Week, London edition. Today, I’m talking about the conversations, the chat and the priorities people want Government to focus on.
A quick reminder, the week is focused on the continuing realisation of Digital Assets across the finance ecosystem. Bringing the traditional funding and listing players together with the new digital exchange and platform opportunities. Exploring both listed securities and private tokenization of securities along with educating investors on the opportunities. A focus on the institutional adoption of digital assets, covering the full spectrum including the technology, crypto, and securities.
So, that’s the formal, what of the fringe?
Conversations revolved largely around four key themes:
- communication with the industry,
- support and engender competitiveness and alignment,
- the power and opportunity of English law,
- understanding proofing and deploying the technology.
Communication and strong dialogue
Several spoke of their frustration with the Financial Conduct Authority (FCA). In particular in respect of the seeming lack of any explanation as to why firms were being rejected from the AML registration regime. Many felt that they, and others, had tried to be as communicative and transparent as possible but had received nothing in terms of what more they needed to do or the specific reasons for their rejection. A number considered that greater guidance from the FCA would surely be of help in this space.
There was much positive comment as to the sandbox aspirations, not least in relation to the proposed FMI sandbox as set out in the Financial Services and Markets Bill currently in the Commons. The difficulty in getting a bank account is always, rightly, raised. Work is clearly required here and a number of potential roles for Government are worth considering, perhaps even, an Innovation Bank.
Everyone was firmly of the opinion that it must be a positive thing for regulators to be better educated and equipped to productively work with the complexity of the digital assets industry to deliver (more) effective supervision and enforcement where it is required.
How to support and engender competitiveness and alignment
The UK has an advantage, not first mover by any means, but an opportunity to learn the lessons from other jurisdictions around the globe that are hard into adopting a regulatory framework for digital and crypto assets. It is self-evident that the technology is global and thus nothing written in isolation will do the trick. We must be outward facing, internationally focussed and collaborative. Collaboration with key jurisdictions, certainly the US and EU but also, importantly, Switzerland and the UAE.
Moving forward, many felt that an incremental approach assessing the applicability of existing financial services legislation, followed by noting where amendments are needed and then where new legislation is needed is a sensible one. It was good to hear as this is very much the approach being taken with the current Financial Services and Markets Bill.
The power of English Law
The work of the Law Commission was warmly mentioned in many conversations, and I was glad to have paid tribute to their efforts in my keynote speech. Similarly, we should give more than a nod to the current Master of the Rolls, Sir Geoffrey Vos, who is the most senior civil judge in the legal system in England and Wales and also one of the most prescient and insightful champions of technologies such as distributed ledger technologies (DLT) the law has ever seen. The Law Commission’s report on digital assets was talked of in glowing terms. It is worthy of note that the report has already gained traction and huge credibility internationally, being referenced in cases outside the UK, including the reference from Judge Glenn in the Celsius bankruptcy case.
There is no question the UK is in a prime position to lead the way in which digital assets are classified as property given the broad reach that the law of England and Wales has in governing international commercial contracts. The opportunity is now for English law to position itself as a good candidate to provide the legal foundation of the use of DLT and cryptoassets internationally.
The UK should also focus on providing clarity on legal DAO structures to enable decentralised finance (DeFi) protocols to scale with greater legal certainty. This is not only important for innovation in the UK, but also because DeFi is crucial to the future of financial institutions and decentralised financial market infrastructures. Other jurisdictions who have explored the legal structures and considerations for DAOs include Singapore, Germany and Australia.
The Law Commission’s ongoing 15-month scoping study initiative to understand the current treatment of DAOs under the law of England and Wales was all well received. Reiterating the above, legal certainty for DAO under the law of England and Wales will provide huge opportunities for the UK to position itself as a choice jurisdiction.
Understanding proofing and deploying the technology
In the wake of the FTX travails it was unsurprising that many spoke of the need to broaden the debate way beyond bitcoin and cryptocurrency to the huge opportunity presented by nothing short of the transformation (through technology) of the financial services industry.
With so many members present, it was right that the work of the GDF Private Markets Digitisation Steering Group came up. It was offered as a proof of concept for what is possible in the UK. As importantly, re-thinking the Central Securities Depository (CSD) model to better secure digital assets, along with the new world-class legal rights and protections, was believed to be a help to “domicile” digital assets in the UK and generate revenues beyond the “picks and shovels” license and tax revenue from domiciled exchanges.
The role that such technologies, including DLT, could play in LSEG transformation was mentioned along with the opportunities at the London Metals Exchange, just consider lithium and gold for two.
In conclusion, the conversations had one word at their heart, certainty. Regulatory certainty. Certainty as to the Government’s commitment, direction and ‘picks’ in this space. All saw the opportunities as awesome, all agreed, as I highlighted in my keynote, it would, be partnerships which would be required to seize the day and throw open the ‘DAW’ to such future finance now.