OPINION: Cross-Border Crypto Regulation is a Pipe Dream
The board of the International Organization of Securities Commissions agreed to publish a consultative paper regarding the challenges that market regulators face when providing investor protection to those trading digital assets.
Expect the paper to read like a collaboration horror master Stephen King and science-fiction visionary William Gibson: It will not be pretty.
Also, if anyone proposes to begin on a global set of trading standards, stop now.
The three highest hurdles regulators need to clear are their conservative natures, global politics, and the increasingly rapid evolution of the technology.
U.S. Securities and Exchange Commission Chairman Jay Clayton has said on many occasions that the regulator seeks to apply existing securities law to the new spectrum of digital assets instead of creating new regulations that could conflict with current securities rules.
In doing so, the SEC FinHub issued guidance to potential securities-token offerers to help them determine if the regulator would consider their offerings a security. The guidance exploded the SEC’s four-prong Howey Test into 65 separate prongs, noted Kristin Boggiano, chief legal officer at AlphaPoint, during an open call hosted by the STA Foundation at the end of April.
The “guidance,” which is non-binding on the SEC nor its staff, is the perfect delaying tactic. It permits the regulator some breathing room but does not address the original problem: The SEC will need to develop some new rules for digital assets eventually.
All of the SEC’s global counterparts are under the same pressure to integrate digital assets within their securities regulation.
However, every national and supra-national market regulator also is trying to have their respective markets become the global market center for the new asset classes. The easiest way to accomplish that is to become as regulatory friendly as possible.
It’s doubtful that it will be an entire race to the bottom in terms of regulatory oversight, but it will create a broad spectrum of regulatory standards that will be difficult to harmonize.
Finally, if regulators thought that 2017 was the busiest time for initial coin and token offerings, they better strap themselves in.
Digital assets are reaching a significant evolutionary milestone soon. Until now, smart contract authoring languages typically had been tied to their respective blockchain stacks, which meant the creators of digital assets had to bet on which digital ledger platforms would become de facto industry standards in next three, five or a dozen years down the road.
This is changing as authoring languages, such as the open source Digital Asset Modeling Language, begins abstracting themselves from their underlying platform. Think of it in the same way in which Java lowered the barrier in code development by taking the platform-selection decision off the table.
Once these authoring tools become “write once and run on any distributed ledger,” the explosion in digital asset types will be tremendous and will force regulators to redouble their efforts to protect investors.
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