COPENHAGEN, Denmark -- Blockchain dominated discussion on the first day of the Money20/20 Europe conference, with one panel discussing the difficulty governments are having coming up with regulations for the digital ledger technology.
One region that has been perhaps the most active when it comes to blockchain and bitcoin technology is the Isle of Man in the Irish Sea. Brian Donegan, COO of Digital Business, of the Department Economic Development for the Isle of Man Government, explained that the digital currency world came “knocking on the Isle of Man’s door” about two years ago, and since that time, the Isle has implemented regulations around virtual currencies.
“We have a very strong pipeline of business coming from both blockchain and digital currency,” Donegan said. “It’s driven mainly by the fact that quality business and premium business, which is what we target, is attracted to the Isle of Man simply because of the regulation. When we ask why, they say that regulation brings certainty. Premium business likes regulation.”
Of course, it’s a bit easier for a nation like the Isle of Man to embrace bitcoin and blockchain, given that it only has two financial institutions. In a nation like the U.S., it’s a tad more complicated, noted panelist Veronica McGregor, partner with Hogan Lovells. “Getting U.S. [financial institutions] to all share an opinion on anything—much less a new and innovative technology—is very difficult,” she said. “Our regulators tend to take a very cautious approach to things, and the concerns for this kind of technology would be money laundering, financing of crime, and consumer protection.”
According to Dr. Paolo Tasca, director of the UCL Centre for Blockchain Technologies, regulators are having such a tough time because they don’t fully understand blockchain yet. “Regulators are finding it difficult to design the right approach to regulate it,” he said. “All the concepts around blockchain are touching elements of money, elements of payments and sometimes elements of goods, and that is very complicated. I think that it’s too early for a proper regulation.”
Monica Monaco, founder and managing director for Trust EU Affairs, a consultancy that specializes in financial services legislation at the European Union level, noted that the European Commission is largely positive about blockchain, however, the EU executive body is exercising caution around it due to the risks.
“I think that regulators see a problem when approaching a distributed ledger; it’s the fact that it’s decentralized,” she said. “When you are a regulator, you look at things like operational risk and settlement risk. If you read the [Payment Services Directive 2 (PSD2), Article 35 about stability. As a scheme, you can refuse to add a participant in the scheme if its participation causes a risk to the operational functionality and the stability of the system itself.”
So when you introduce technology that is decentralized, who controls what? “That’s something relevant when you are a regulator,” Monaco said. “That’s been something the regulators in Brussels are discussing—how can you centralize control on something that is decentralized or should you?”Eventually though, regulators at large should be able to wrap their minds around blockchain. Once that happens, a global standard could be possible—something Donegan believes is a necessity for the technology to truly catch on. “Nothing really will change until we have a standard everybody will recognize,” he said. “If the regulators get comfortable with blockchain, then the banks will get comfortable with blockchain.”