Will Feds Regulate Blockchain? ‘Better Not Tell You Now.’
- By Andrew Deichler
- Published: 4/17/2017
Regulators know that blockchain and distributed ledger technology (DLT) can transform finance. They just don’t see them transforming finance any time soon. As a result, they are putting off regulating them until later.
Last week, the Federal Reserve Board announced that, while blockchain and DLT hold great potential, they are mostly in the development stage right now and therefore difficult to regulate. After comparing the Fed’s findings with a separate report on automation in financial advice by the European Supervisory Authorities (ESAs), the CFA Institute concluded that regulators “welcome fintech but are not quite sure what to do with it.” The association was quick to add that the reason for this approach has less to do with regulators not understanding fintech and more to do with the fact that regulations are intended to uphold market integrity and investor protection. Since fintech is still at such an early stage, there is still very little for regulators to evaluate.
British regulators are warier of fintech and view it as a substantial threat to the traditional banking model. Bank of England Governor Mark Carney said that competition in the fintech space could reduce loyalty to mainstream financial institutions and potentially erode their financial stability.
Should that happen, Carney sees the UK’s central bank stepping in. “The Bank of England would need to ensure prudential standards and resolution regimes for the affected banks are sufficiently robust to these risks,” he said.
But Carney also echoed the Fed’s current sentiment on imposing any new regulations at the present time. He said there was no need to do so now, given that so far, fintech has “avoided undertaking traditional banking activities.”
Furthermore, Carney sees the UK fintech sector, which is worth about £7 billion ($8.8 billion) and employs approximately 60,000 people, having the potential to significantly boost economic growth in the UK. “The challenge for policymakers is to ensure that fintech develops in a way that maximizes the opportunities and minimizes the risks for society,” he said.
Ron Quaranta, chairman and founder of the Wall Street Blockchain Alliance (WSBA), told AFP that regulators want to empower blockchain, not burden it. “Is blockchain something that is going to make regulatory compliance better, easier and more efficient?” he asked. “And how does that change the landscape for compliance across financial markets? What if compliance becomes less of a cost center and more of a value proposition?”
Quaranta noted that everything is still in the early stages and regulators are merely scratching the surface at this point. “But what I can tell you is, the tempo is very different; the tempo is very much about regulators not wanting to stifle innovation, but wanting to be part of the innovation,” he said.
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