Crypto Pros & Cons

Implementing financial regulation and compliance

Regulations are going to save the cryptocurrency industry from the volatility that is killing it. Or, at least, that is one opinion. Another is that regulations should be avoided at all costs because they run counter to the core of crypto, as well as the decentralized future it empowers.

While these two views are among the more extreme when it comes to the topic of crypto and regulation, they reveal the two camps that dominate the discussion. Many have reasons for why regulations should be welcomed, whereas others have reasons for why they should be resisted. Finding a consensus has, thus far, been challenging. This provides an opening for discussion around the value of self-regulatory organizations (SROs) and how they may be utilized in the context of complementing formal regulations to provide sufficient consumer protection and regulatory coverage.

SROs represent a nuanced perspective to the binary discussion for or against regulation. Although regulations for the digital asset industry are necessary, when coupled with a global, flexible and responsive SRO they may be better able to strike the balance needed in protecting consumers while at the same time encouraging innovation and growth in emerging technologies. When SROs are designed as a complement to right-sized regulations, they can provide up-to-date and highly technical expertise, a nearness and fuller understanding of emerging issues and trends in the industry, and a flexibility and timeliness in responding to the regulatory needs of an industry that builds public trust, fosters market integrity, and maximizes economic opportunity for all participants. Coupled with lean, but strong formal regulations, SROs advance the development of standards and solutions that support the growth of the industry. In short, SROs bring stewardship into the equation.

Stewardship is an uncommon, albeit much-needed, position in today’s business world and draws heavily upon the idea that a modern industry organization should shape and guide the development of an emerging and globally significant industry in harmony with the broader economy, society and public interest. Stewardship does not assume ownership; rather, those with a stewardship mindset typically approach an issue with an understanding that it has been entrusted to their care.

As it applies to the realm of digital assets, a stewardship approach recognizes that anything that makes the industry stronger, including well-crafted regulations, will benefit all stakeholders. It understands that regulators and those in the industry are both pursuing the same goal, but may have different priorities and plans for reaching that goal. Stewardship promotes communication, understanding, and mutual appreciation as keys for making effective progress. Overall, it empowers and safeguards the highest ethical and technical standards, rather than acting as a facade of governance.

On March 9, 2022, President Joe Biden signed an Executive Order on “Ensuring Responsible Development of Digital Assets.” Among other things, the order puts in motion an effort to “protect consumers, investors, and businesses” from the risks associated with cryptocurrencies. The order specifically says, “The new and unique uses and functions that digital assets can facilitate may create additional economic and financial risks requiring an evolution to a regulatory approach that adequately addresses those risks.”

As US agencies explore whether regulations are appropriate — and, if so, how to apply them — self-regulatory movements can serve the process in a variety of ways, especially ones driven by a stewardship mentality. By providing a compelling forum for unified industry engagement, they can develop and contribute consensus-based solutions for problems identified by regulators.

Facilitating the development of industry-wide professional and ethical standards is one key step that early self-regulatory movements can take as regulations are being considered. Rather than imposing constraints, as regulations often do, principles-based standards address the lack of clarity and best practices in emerging marketplaces like digital assets. Whereas regulations will typically address certain aspects of an industry's operations in a particular area, industry standards can provide global guidance that fosters development of businesses across the industry and offers a clear pathway for firms to build resilient and globally competitive firms.

Self-regulatory movements can also build human capacity within the industry by enabling access to materials, resources, and the expertise found within its membership and partners. When these efforts include providing avenues for industry-specific certifications, these movements not only improve the industry’s capacity, but also its reputation within the global community.

When it comes to the development of regulations, and the ongoing enforcement efforts that follow, emerging self-regulatory movements serve as a conduit for dialogue between regulators and regulated. The most effective regulation for the parties involved will be that which grows out of collaboration between all stakeholders. Self-regulatory movements identify opportunities for legal and regulatory engagement, strive to build awareness with key legislators and regulators, and take advantage of opportunities to provide feedback and insight on needed legal and regulatory reforms in countries around the world.

Gabriella Kusz– Gabriella Kusz is the CEO of the Global Digital Asset and Cryptocurrency Association, a global voluntary self-regulatory association for the digital asset and cryptocurrency industry. Global DCA was established to guide the evolution of digital assets, cryptocurrencies, and the underlying blockchain technology.


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