Traditional financial services players such as Barclays and c joined leaders from the virtual currency and Blockchain world, to meet with policymakers from across the EU institutions in a series of roundtables organised by the European Digital Currency & Blockchain Technology Forum (EDCAB) in the European Parliament.
Participants were also joined by the World Bank, IMF, the Bank for International Settlements, OECD, the European Securities and Markets Authority and Europol to discuss how to best to develop an optimal regulatory framework for the nascent sector.
EDCAB Founder, Siân Jones, moderated sessions on the economic benefit of virtual currency, trusting distributed ledgers and ensuring effective and proportionate legislation.
The roundtable series comes at an important time. Virtual currencies have rapidly risen up the European policy agenda in all the major institutions. On Tuesday, the European Parliament’s Economic and Monetary Affairs Committee discussed their report on future regulation of the European virtual currency and Blockchain industry. The influential Internal Market and Consumer Protection Committee also met yesterday and today to review and discuss amendments to their opinion on the report.
“As the only independent European public policy platform for virtual currencies and distributed ledger technology, EDCAB is delighted to be playing a leading role in shaping discussions between industry and policymakers in order to secure a sound regulatory and policy landscape”.
The sector has benefited from cross party support and roundtables were well attended with participants from all European institutions.
Syed Kamall MEP, Chair of the European Conservatives and Reformists Group opened discussions on ‘Virtual currencies: The future of money’:
“I believe that it is essential that we don’t just discuss these issues behind closed doors but open these debates up to everyone. If we get it right, Blockchain and virtual currency technologies offer us many opportunities, not just for institutions but also for individuals and we need to make sure they are part of that debate”.
Eva Kaili MEP, Socialists and Democrats member, hosting the discussion on ‘Blockchain: Trusting distributed ledgers’ added:
“The technology is there and the opportunities and challenges must be faced and embraced as a priority. As part of this I have asked for a separate report of the INTA Committee to ensure that the groundbreaking potential of the technology is fully embraced.”
Ashley Fox MEP on ‘Regulating virtual currencies and Blockchain: A balancing act’ remarked:
“We look to work with industry to inform us on this important issue. There is a consensus in the Parliament, that policymakers should be careful not to regulate the technology out of existence”.
The roundtables demonstrated clear appetite from both policymakers and industry to work together to achieve positive outcomes for the sector.
“EDCAB looks forward to continuing to facilitate informed and engaging on all live issues and future policies which will impact this rapidly developing sector. We are monitoring events closely and will continue to build upon established relationships with stakeholders across institutions to ensure the right outcomes for the sector and the citizens it serves”.
Overview of discussions
Industry and policymakers agreed that Blockchain and virtual currencies democratise finance and give the power to transact back to consumers. There was widespread agreement that Blockchain technologies provide a level of transparency and certainty unlike ever before – with unparalleled benefits to users and providers of financial services.
Industry and policymakers agree that regulation should be descriptive rather than prescriptive. Though the technology is a nascent one, it is a rapidly evolving. This necessitates collaboration between industry and policymakers in order to understand what works and what should be avoided. Devising an appropriate regulation for currencies should take into account the wide range of alternative uses.
It was underlined that digital currencies have been identified by many governments as low risk threats and there is little concrete evidence to suggest that digital currencies are commonly used illegally.
Policymakers underlined that the policy challenge is twofold: to foster a supportive environment to allow industry to grow whilst also reducing the risk of illicit activity and perceived risks.
A need to stimulate and facilitate innovation was a common theme. Participants agreed that regulation needs to be proportionate to the risks presented. For example, regulatory criteria should reflect variables such as the number of transactions or systemic significance. It was suggested that, the lower the risk, the lower the regulatory requirement This would allow for emerging industry players to experiment and build customers.
It was suggested that over regulation is problematic given the fundamental philosophy of Blockchain and virtual currencies, which view financial regulations as obstructions and route around them. Excessive regulation runs the risk of encouraging the emergence of fully obscured functions. It was suggested that policymakers may want to focus on low risk stimulation in areas where regulatory thresholds are low. Once this is properly understood, these learnings could be applied to higher risk applications.
The industry operates in and offers services which are already regulated. It was suggested that before introducing new regulation, the efficacy of the current regulatory regime should be tested. Where regulatory gaps are identified, solutions must be sought; but this must be based on proper understanding of where there are regulatory limitations.
There was broad consensus on the need to develop regulation which promotes legitimacy. It was agreed that there is a need for industry, governments and academia to come together to build standards across the European Union (and on an international level) in different settings to provide a level playing field. The need to avoid competitive arbitrage is crucial – support from government working across Member States would be welcomed, as international cooperation is essential. Policymakers are encouraged to look at best practice across Member States. Industry welcomed the UK’s approach of allowing industry to self regulate and develop standards for consumer protection.
There remain misconceptions and a lack of understanding of technologies. It was agreed that there is a need for industry to be proactive in communicating risks and liabilities to consumers. This is an important step in building legitimacy for the sector and industry agreed on the need to be transparent about how they manage risk and work with policymakers to educate and build public confidence.
The need for policymakers, industry and academia to pool resources and work together to identify and minimise illegal use was also identified.
Access to financial and banking services from the broader financial industry incumbents was also highlighted as a barrier to emerging players and growth of the sector.