Blockchain: Regulation and Law - European Blockchain Convention

So please welcome to the last panel of the day and a very important topic blockchain regulation and the law in 2020. A lot of things are going on these days and also the next few weeks. So I'll give the word to Deborah and please go ahead and welcome to the last panel of the day. Thank you so much Victoria uh for inviting us to this really awesome panel and of course this super awesome conference. Thanks to all the sponsors and of course thanks to you the attendees for attending.

This is your conference. So please put your questions into the chat and then we'll answer them as we go along. Now what we're going to be talking about today is regulation and blockchain. Super important for everyone for all of us together in this blockchain world. particularly important for those all for those um killer blockchain apps that we know are coming, the ones that will be widely used by everybody.

I am joined by an awesome allstar all female panel and I'm going to introduce them to you one by one. They have so many accomplishments I'm only going to be able to tell you about a few of them. Amandine dot heads the public policy program at Ledger. Ledger is a scaleup specialized in security which is essential if you want to keep your private key safe and has sold more than $2 million worth of Ledger Nanos in the past few years. Ledger Ledger also offers B2B solutions for enterprise.

Regulation is key at Ledger as we as they believe this will drop mass adoption and will also help traditional institutions dive into this fascinating ecosystem. Nina Sidler is partner at DWF, a technologyoriented global law firm and head of the international blockchain competence group. She focuses on the legal implication of blockchain and distributed ledger technologies. Nina is a member of the board of direct directors of INATBA, an EU commission initiated global blockchain association, the interplanetary database association and a Luxembourgbased legal think tank. She supports numerous initiatives and has recently joined the UNIDA exploratory working group on digital assets.

Josh Clayman is senior council US head of fintech and head of blockchain and digital assets at linklers LLP. She is one of the best known blockchain and cryptocurrency lawyers in the world. Recognized by chambers and partners as only one of three band one ranked US blockchain and cryptocurrency lawyers for 2019 and 2020. At link laders, Josh is also a member of the fintech steering group. She chairs the prominent Wall Street Blockchain allianc's legal working group and serves on its board.

By background, Josh is a transactional finance and corporate lawyer. For years, Josh has worked collaboratively with blockchain leaders and key market participants from around the world to advance industry, anticipate and address regulatory concerns, and seize strategic opportunities. She speaks frequently with regulators both inside and outside the US and was appointed by the state of Delaware to serve on its blockchain strategy committee. For those of you outside the US who may not be aware of this, the state of Delaware is the state in the US in which a huge number of corporations are based. Corporate law in Delaware is perhaps the most advanced of any state.

So Josh really has her finger on the pulse of blockchain in the US. Passionate about the advancement of women and other diverse groups, Josh is a co-founder of the nonprofit Diversity and Blockchain. She has five children and one grandchild, leading some of the blockchain industry to nickname her mother of blockchains. Belen Aribbas is a senior law professional with an extensive track record in digital, corporate, commercial, and data privacy law and compliance, including cutting edge sectors like blockchain, AI, IoT, big data, cyber security, and more. She pioneered the practice of IT law in Spain and has been recognized in directories like best lawyers and who's who legal.

Previously at Anderson, she currently owns her own practice. She is vice president of IFCLA and board member of Anetic, the Spanish Association of IT Law Experts, as well as a board member of the Digital Transformation Commission of the Barcelona Bar Association. I would like to welcome all of our panelists and thank them for taking the time to join us today for the panel. We're going to start with country specific regulation. Amandine, would you please like to start?

What are your feelings about country specific regulation in blockchain? Thank you very much, Laura, for um for the question. Um so I'm I would say that my knowledge is more about France than the EU regulation where I'm located. Um I would say that first we can hope for harmonized regime. The French regime has been established I think it was a year ago.

It's a good regime. It's an opt-in regime meaning that you can launch a custody business in France for example um being licensed or not. You can decide. So it's really innovative for an innovative word. um you will have to go through for example if you're an exchange or if you are a custodian wallet you will have to go through AML procedure meaning that you show that you have taken into account uh anti-moneyaundering and anti- financing terrorism um procedures but then once you've showed this and you're registered within the competent authorities then you can launch your business you can go through the full license process but it really depends on whether you want you want to do it or So I think this regime which is what we what call an optin regime is really innovative in the financial crypto world because it's not that common to get optin regimes in the financial world and I think what I like about this regime is that crypto asset world I think it's big because I work on a daily basis on crypto assets but it's not that big if you compare it to the financial industry already existing.

So the risks are at the size of the market. So it's great to have a legislation which is helping innovation because you don't have to spend I mean tremendous resources for example in compliance. It's important to protect the investors. It's important that there's no money laundering or that you fight against it. But for the rest it's important also to have businesses which can scale.

And if you have like a regulation because that's the name of the panel. If you have a regulation which is so heavy that instead of spending your resource in innovating you're spending your resource on compliance I think it's going to be hard to be attractive actually for uh for uh you know it's going to be hard for companies to scale and it's going to be hard for to to attract actually foreign companies. So I think we can yeah that that that's a really great really great system. So as you know France is part of Europe. I think we'll talk about Europe a little bit later on.

Of course, if there is a European legislation, French regulation will have to adapt, but that's that's a different story. As for France, it's set in stone now and crypto companies can start uh doing their business knowing where they go. Excellent. Thank you so much, Amandine. Bellan, what are you seeing in Spain?

I heard there's some exciting news. There are exciting news. However, I must start by uh unfortunately uh not being so optimistic or positive uh like Amandin because in Spain actually we do not have a legal framework for uh blockchain businesses. Uh we do have an expectation which is uh made uh reality uh these days which is the proposal of uh EU regulation on crypto assets. Uh I think that uh one of my co-presenters today will uh go into detail later.

Uh and and of course this proposal represents a lot to to our system since we think that it will bring certainty and legal uh clarity and above all a common European approach so that uh players can follow the rules and uh enter the EU market. So far we have a lot of uh uncertainty at least here for for assets for securities for utility tokens. Erh of course we need still the proposal to uh to go to the parliament to to be debated and hopefully adopted. uh but if adopted we will have a balanced uh approach which uh we need and uh uh I said uh it can take some time but I think it it will be a time well uh extend um but we have um in Spain I will go uh through uh very very quickly uh I will go through the hot topics regarding crypto and uh blockchain businesses at large and then uh I'll uh I'll name a few landmark statements on cryptocurrencies by the Supreme Court and the European Court of Justice and the supervisory authorities in Spain which uh makes our our um framework our current framework. So the hot topics as anywhere else are sovereign uh identity, governance of networks, tokens, markets, digital contracting, smart contracts.

Um if a blockchain is a mean of proof or not in front of court, uh of course data protection and privacy uh issues uh especially with public blockchains. if hash is a personal data uh etc. We can go into more detail later if we have uh the time. Uh now um I I was uh I was saying we have these very few statements regarding uh crypto currencies. Cryptocurrencies as most most countries is legal but is not regulated uh expressly by uh our law.

Uh we have the European Court justice decision in 2015 that declared Bitcoin as a virtual currency whose uh trade with a traditional currency is VAT except. Then we had a a landmark court decision in Spain by our Supreme Court that uh stated or categorized Bitcoin again as an intangible I mean I'm I'm reading intangible property assets that does not qualify as money and then a few uh clarification regarding a tax aspect uh were uh giving. So the Supreme Court uh as with the uh decision of the European Court of Justice stated that um the exchange is not subject to uh VAT. It is to a personal income tax as capital gains. It uh can also uh the case may be uh apply or uh uh or uh be subject to company tax and to wealth tax.

This is some of the certainties we have regarding uh crypto. Then we have like 20 decisions of the directorate uh of the uh uh authority of uh tax directory in in Spain and a few court decisions in cases of crypto theft. Uh this is this is all regarding uh uh cryptocurrencies. uh the Spanish regulator CNMV the security market uh commissioner issued a very important statement on ICOs back in 2018 and we don't have much more than that it uh stated that uh ICOs can could be issued until the EU legal framework uh was published. H it stated that it can be issued up to 5 million euros in company shares or securities that security could be traded of course that h token security tokens were acceptable as alternative for crowdfunding especially for uh startups etc.

That was a recognition then that uh well it accepted further that utility tokens uh that were uh were in the market but both concepts of uh security and utility tokens were um a bit confusing. Uh it stated for instance that utility tokens should be regulated or were impacted only by consumer protection law while security tokens uh are impacted uh largely by MLA uh KYC uh procedures by MIT regulation prospectus directive and the whole package as security. very distinctive uh very different uh um treatment u by the regulator uh two different kind of tokens at a time. Thank you Balin. Um Nina, would you like to comment on the situation in Germany then?

Yeah, sure. Um we had some major amendments of our banking laws as of the beginning of 2020 when Germany implemented the changes triggered by the uh European anti-money law regulations. Um but the German legislature did not only implement these but took the opportunity to introduce a couple of further uh things which are uh Germany specific and not European law- based. um basically including a definition of um crypto assets um making them all financial instruments. Um so according to German law um cryptocurrencies are financial instruments as well not only securities.

Um and then the second uh main point was um that they introduced a new uh license service which is crypto custody. So that happened earlier this year. Um and then uh just a month ago, the German legislature finally uh published a draft on the new electronic securities law which will wave the current paper requirement for issuing securities here in Germany and introduced the concept of electronic registers and specifically crypto registers. Um so that is currently very much debated. um specifically the proposed law does not seem to include an exemption for issuers.

So even the uh electronic securities issuer will be required to obtain this license if they want to operate their own register for their securities which was a bit uh a surprise and uh is now debated. Um, other than that, so Germany is not a very um crypto serer friendly environment because basically any type of service by now requires some sort of license, a true financial services license with all the stuff coming along with that. minimum capital requirements, reporting obligations, um everything you know um the principle of same risk um same approach uh applies fully here. Yeah. So that's basically it.

And then uh maybe in addition typically Europe um took a very uh close look only at things happening on their own territory. Um but this concept weakens now a bit. um because approaching at least the the German market is now understood by Buffin also to happen when you have a website not expressly excluding that this is targeting Germany for example or if you um build up a network of u recommenders for your products within Germany then um you're uh you're assumed to be targeting Germany as well but you know Josh we had this discussion a lot of times the US goes even very much further that right absolutely is it true yes so yes so since it's not the North American blockchain convention I'll I'll keep it brief because I know it is the European blockchain convention um but yes in addition to having to worry about if you're dealing with the US you know potentially state laws potentially federal laws in some cases you actually have to worry about US law or at least the US says that you have to even if you think you're trying to do things outside of the US. So what do I mean by that? Well, in general, the presumption is supposed to be that and is that generally speaking, US laws apply to activities only conduct really within the US except if there's specific reference and explicit reference that there is extr territorial application, right?

But what what is conduct within the US? Like how do we look at that? So a couple of things just at a very high level and nothing on this panel is legal advice or investment advice. I'll say on behalf of all of us. Um basically if the condent if the conduct that a statute is looking to focus on occurred in the US then it's possible that the case involves a permissible domestic meaning US application even if other conduct occurred outside the US.

But if what the the focus of the statute if that conduct occurred outside of the US then perhaps the US law wouldn't apply. So how can this come up? I'll just give a few quick examples in the digital asset context. This is by no means exclusive and again it's very high level. So, the Exchange Act, the Securities Exchange Act of 1934 and its rules and antifraud provisions, those can be enforced by private actions by the SEC and by the DOJ.

And um in some cases, you know, it could be something that you think is occurring outside of the US, right? where you have freedom of contract, you've had choice of jurisdiction, you say the making of the contract occurred somewhere else, you have choice of law outside the US. But for example, in the second circuit, um basically the circuit covering New York um and that area has applied what's called an irrevocable liability test. So when determining whether a securities transaction happened in the US or is domestic, they ask where did the you know the purchaser incur irrevocable liability to pay for and receive a security or by contrast where did the seller um incur irrevocable liability to deliver the security and so they also may look at where title to the security was passed. Now notice I keep saying security because it's a securities law thing.

I law I should note and I I think it's important to note here um even though I'm going to just talk about for a second a few other different kinds of laws is that you can have outside of the US um throughout the rest of the world you can have in its jurisdiction of issuance a token not be deemed a security under those laws but the US looks really at the transactions the sales transactions the offer and sale and so it could be deemed to be a security in the US even it's outside of the US, it's not a security. So, definitely a lot to think about. A few other quick things. Um, the Commodities Exchange Act, including its antifraud provisions, that can be enforced by private actions, the CFTC and the DOJ, and it has a similar test to that irrevocable liability test. Um, and also a few other cases like swamps where it's more explicit.

But then the moneyaundering control act um and the foreign corrupt practices act those permit extr territorial jurisdiction and in cases where you might not expect. So, I'll wrap it up now, but what I will say is when you're looking at, for example, in the Foreign Corrupt Practices Act, the anti-bribery provisions, right? When they talk about interstate commerce, meaning US interstate commerce, it can be as simple as placing a telephone call or sending an email, a text message or facts to or from or through the US, as well as, for example, using the wires. So, definitely something to be careful of if you're if you're trying to avoid the US. not just if you're operating in.

Yeah, I'm actually quite uh quite shocked by that, Josh, but thanks so much for letting us all know. Um, so this actually brings up another interesting point. We could, of course, develop laws that would allow us to work all over the world with blockchain and would allow issuers to work internationally and work between countries. And we could do it in one of two ways, either through harmonization or extr territorial regulation. So uh Amandine if you could please start us off what do you think harmonization versus extr territorial regulation where do you think the trends lie and what is your personal take on this field right thank you for the question Vora well I believe the more harmonized we are uh you know the better the company can scale it's very hard for if if we take the newbies you know in this environment not not a a bank would have which would have done custody of securities for the last decade Um if you are a new company and you want to enter the space if you are a European company you can decently think that uh Europe is is one region which is supposed to have one regulation.

I mean we do have laws which are voted at at um at European level and you can expect these kind of things. The thing is that in Europe even if you have those kind of directives or regulation you still have a kind of local interpretation of the law and this is going to uh lead to a kind of forum shopping and this is against um I would say predictability of where you stand if you want to scale beyond the beyond your your home country. I mean, Ledger is selling in 165 countries. Ledger is 120 employees. There's no way I can check in 165 countries whether I'm going to be compliant or not.

I mean, either I sell in France and that I'm going to remain like a French company, which is okay, but if you want to scale, I mean, how am I going and I'm part of the legal department. I'm just like, okay, so how am I going to do it? you know how am I going to say that I need this kind of budget for regulatory compliance where we are just trying you know to to become a little bit bigger so it means that I'm I'm strongly in favor of harmonization I'm strongly in favor of doing I mean giving the needs giving the tools to actually scale a little bit broader than your home country and I think after that it's a kind of risk based approach you know you cannot I I have to admit as a legal counselor that I have said yes to commercialization of the product where I had the gut feeling that it was okay. But was it okay to have non-hosted wallets sold in this country? I mean, who could tell, you know, and and definitely I I didn't have, you know, all the means at the time to actually choose that.

So I think as my recommendation if you want to scale a little bit abroad is that you get a feeling of the countries where actually you can be caught and what Josh said is true I mean in the US you can be caught you don't want to be caught in the US you know you have the feeling that you don't want to be caught there you can because not in the US it doesn't feel it doesn't feel right you know in terms of like reputation you're going to be like on the headline of the newspaper you know you got caught in the US I think for your company it's going to be hard but then you have to choose the countries where if you want to have a kind of a proper business, you know, at some point you will need to make a risk based approach. The same way that the regulation did a risk based approach, you know, in as NIA said in Germany, you know, the same risk will lead to the same consequences. I think it's also a risk based approach when you build your business. Well, those are really excellent points, Amundine. You're right.

Risk based and balance of risks Europe. I don't know. It sounds like it's a could be a bit tough environment. Balen, what are your thoughts on that? Sorry, you're muted.

Balen, can you unmute yourself? Uh I was saying that I couldn't agree more with Amand. I am a strong believer in harmonization of as well. Of course, I'm um a European and I believe we I believe we need to be develop harmonized understanding of what digital assets are at large. I found a very interesting paper from the EU blockchain observatory and forum which is the report they just published on their uh two years of work.

Uh it's called conclusion book and it does have a lot of insight um regarding harmonization and uh how the legal recognition of uh blockchain smart contracts uh could uh can happen. That's the recognition of the legal issues. You all know uh about them. But I found very interesting a guideline a a set of guidelines or guiding pr principles uh that the observatory call them uh for policy makers just in the uh in the uh way of harmonization. Uh the first one uh is craft the craft of simple definitions of the technology.

This is easier said than done but I think it's a very uh good uh basis if it can be uh achieved. Um then they recommend also to communicate legal interpretations as broadly as possible to the public not only players but also the public at large. uh they recommend also to choose the right regulatory approach for each problem which again uh it's easier said than than done then to harmonize law and to harmonize the interpretation of it which is something that Amandin previously was explaining to this is one of the difficulties as uh that we as uh lawyers and uh councils of um of different companies startups and uh you know middle market uh technology companies uh face uh every day. We need uh we have to interpret um the law for them. We have to um uh convince them.

Many times it's complicated to convince them how can this be so different in Spain for uh Germany uh uh um France other European countries. If uh we have harmonized uh uh laws u regulations uh another interesting guiding principle um was why not making also use of blockchain as a regulatory tool. So uh this is an open point that uh they left uh like this. Then the rest of the guidelines relate to uh help policy makers develop a understanding of technology which is not obvious many times. Um uh to work on high impact use cases first and uh leave the rest of less mature cases closely monitored.

Well, of course, uh there but encourage with this one's self-regulation and concentrate and focus on high impact uh cases. I think these guidelines by the European observatory and forum are interesting if we look at harmonization. As uh I said they are uh easier stated than uh taken to the practice but uh I found uh interesting to uh explain a little bit about this uh this conclusions book that I recommend you all to to read. Thank you Ben. Appreciate that.

Um, Nina, how what is your reaction then to what both Amandine and Benon have been saying? What do you think? And also, of course, after what Josh said. Yes, I um believe um Europe is on the right way in the sense that it now starts to harmonize. Clearly, there is this leaked paper for the future European crypto regulation which will be published to my knowledge formally on Wednesday, but I guess we all had a sneak preview already.

and um uh they try to prevent national jurisdictions from keeping keep holding on to their national versions. So they really try to bring everyone on track. Um and what I liked is um what I saw for the first time is that they create specifically for significant issuers of uh crypto instruments um they create what they call college college of regulators. So the significant ones will be under the regulation of um of the EBA, the European banking authority plus the national um supervisory bodies um and also including the important service providers surrounding an issuance. So also exchanges, wallet providers um which work together with this significant issuers.

So all of these regulators of all of these ent entities will get together in what they call a college. So I think that's a good approach to ensure alignment in the construction of these laws coming up. Um I think that that is a very nice nice thing and then what I would like to to mention um you you said I was had been invited to join the UNIDA exploratory working group on digital asset. I think that's another very important and this time global initiative um with the aim to come up with a taxonomy of digital assets and recommendations for legislators worldwide um to get to to become a bit more harmonized right because actually what you said extr territorial reach is not helping at all because that simply means that all the jurisdictions claiming extr territorial reach will apply additionally Right. So we already have the the the issue right now that when you handle with tokens there is never ever only one single jurisdiction which is applicable.

That's already today the case that you have multiple jurisdictions and you know the more the jurisdictions claim to have extr territorial reach the higher number this will become. Wow that's a really good point Nina. I mean, it ends up being kind of a zero- sum game and not one in which I guess anyone could win. But Josh, how do you re react to that? Nina makes a lot of sense to me.

I I'd vote for her. I mean, I I think she makes a lot of sense, too. Um, not just on this presentation, but just in general. Um, I do think things like having a common taxonomy would be incredibly helpful. Um because no matter where you're starting from uh from your position within a particular country or jurisdiction, at least being able to literally speak the same language about the thing you're talking about would be incredibly helpful.

Um I personally as a personal matter would love to see some kind of harmonization. What I do have to couch that with or caveat with is that within the US we don't even have some sort of real single approach right we have many different regulators all of whom take potentially jurisdiction of some of these transactions involving digital assets right the SEC may say it's security CFTC may say it's commodity IRS may say it's property um Fininsen may say it's money or or some money substitute Right. And and then the 50 states have all different sorts of rules as well. I mean, I do think we're seeing a motion in that direction. For example, just recently in the past couple of weeks, bank regulators in 49 US states, DC and Puerto Rico um basically appear to have developed some sort of plan to make compliance for cryptocurrency companies easier by consolidating certain exams.

um this relates to money services businesses, right? But that's just streamlining things across these states, right? Whereas right now, if you're trying to go into the US, you have to navigate all of these different frameworks. So while yes I do believe that it would be great to have some sort of overarching framework one again one of the one of the key differences that I see is that you know when dealing with clients who may be outside of the US and considering whether to enter the US or just to stay out altogether um you know when you actually look at the way different regulators around the world when many of them can look at a token right and say what are the characteristics or rights related to this token whereas in the US very often you're looking at what is the transaction that this is happening in which is looking at a very different thing how are you selling it how are you offering it rather than what it is so um all that to say I agree about a common taxonomy and we'll all I think continue trying to reach some kind of common view excellent answer Josh very diplomatic I like that um so we're gonna quickly do a lightning round to each panelist on DeFi. We're getting a lot of questions coming in.

A lot of them of course on international regulations clearly of interest to all the folks who want to do business all over the world. But before that, let's I'd love to get the panelist thoughts quickly on DeFi. Starting with Amandine. Amundine, what do you think? Yeah.

So, DeFi has gained a lot of traction lately. Uh we can also say that it's exploding. It makes me think a little bit of what's happened in ICOs during back in the days as if it was a long time ago. It was only a year ago or two years ago, but in the crypto world it seems like ages. So I think if you talk about regulation because I will of course not enter into the details of the project of of the DeFi project, but if you talk about regulation, I think it's going to raise an interesting debate.

There is one thing that regulators hate is that you seem to have no one responsible. So I mean this is code is law you know and somebody drafted a code and then everybody can lend um you know on land on a protocol and um get interest through a smart contract. It's just like but who did it you know who's going to be responsible if if my claim tomorrow is not going to give back you know the cryptos that I lended. So uh what we can see is that uh the proposal that has been released and that Nina talked about earlier at EU level has left the defy aside. Some of the pre provisions will have an impact but um but it's it has left defy aside and I think this might be a smart move.

I I believe that too much regulation is going to kill regulation at some point and um and that we should have once again a risk based approach. If DeFi is big now, it doesn't mean that it's big, you know, per se. So I I I would recommend that for the time being we just have a look at what's happening. We just see the blind spots. We just see the risks and then once we have that in mind, we do something about it.

Look at the ICOs. the ICOs I mean France for example rushed into a regulation spent a lot of time on the regulation ICOs are not dead but we can see that the number has drastically reduced so let's see what defy means you know really and um and what it entails defy means a lot of things some of the defy project are not that defy you know it's also if if with defy you're not responsible then everybody's got to do project so I I think we should have a look. It's it's urgent to wait. That would be my conclusion. Oh, thank you, Amandine.

That's very interesting. Balon, your quick thoughts on DeFi. What do you think? Urgent to wait. Yes.

Um I also be in this in this aspect. But I also um mentioned before while we were preparing this uh this session today that uh I wanted to convey very good news. Uh I'm very happy and uh I think we all should be very happy here in Spain because we have uh waited uh very long to have our uh sandbox law and we finally have it. It was just I was mentioning uh we have it uh since last uh week and this is it's not yet a law but a bill of law that was just passed by uh Congress. I must say that uh this was a very long awaited uh law uh by um um lots of us because uh it started back in 2018 when it was passed by the government and uh because of different political circumstances it was stopped including because of the pandemic of course and it was uh just uh published as a bill of law uh and passed by the congress last week will go to the senate uh we don't expect a lot of modification to the law.

I must say it uh follows as uh as far as I can say a bit the the uh uh English uh model and uh a few notes uh because the the the bill is quite uh quite uh long. Uh it states um of course that it seeks to foster the the transformation of the uh Spanish economy. it seeks uh benefit the consumer and lower the entrance uh the entry barriers um of access uh to finance. Of course, this is uh also acknowledged that it's driven by changes uh in demand. And so we have finally the control testing stays uh for uh um decentralized finance and other in Spain.

It establishes a legal uh regime as I said similar to the one I know in UK uh is an a regime including the access and participation conditions of the players. It establishes uh following also uh Amandin's uh comments uh earlier uh that it makes it very clear that uh liability relies on the company that it's doing the pilot. So whenever you have consortiums uh etc the liability relies uh on the the the player doing the the uh the test erh you need to uh as a player as an actor to uh influence your activity. You need to guarantee that what you are testing uh will uh respond in terms also in in financial terms to your users or the consumers. It provides a system of uh exam of the results.

H it needs uh a a memo to be drafted by the uh the uh player and uh of course the results will be evaluated uh by a by a commission. It will be then sent to the supervisory authority. The it makes it very clear that the pilot program does not encompass a direct authorization for the activity. Additional tests can be required by the supervisor. Uh the authority uh will uh draft their conclusions and the operator can apply or not for authorization after the pilot uh to commence the uh activity.

There's one positive uh aspect as well uh which is that the authority can decide whether uh it starts an expedited authorization process if the activity needs needs authorization so that the uh the uh player can start the activity in my immediately. Uh thank you Bill. Sorry, I hate to interrupt, but we are running out of time and we still have to get to questions and I need Nina and Josh to give their comments on DeFi. But thank you so much. Excellent.

Nina, yeah, maybe just briefly, I'm very journalist Galen. I I would have loved to have, you know, any type of sandbox regulation here in Germany, but we're far away from that. So um yeah, DeFi um I think u Amadine actually addressed the main point which is the question whether there is a subject for regulation and if we are very honest and frank we must I guess all admit that only in very few exceptional cases there is actually a true decentralization on all levels. Right? So typically what you see is at least centralized service providers um granting access to those applications because the normal user out in the street is not capable of using those things directly, right?

They need an access provider. Um and so you could at least capture those uh via regulation and in Germany I can clearly say they are already captures, right? Um and then there is a certain risk um if regulators don't find a subject because then they could come up with the idea and you see first hints towards that also in the new EU word regulation that they make like for example coding a licenseable profession as a whole right so I think that's the biggest threat here and um I spotted in in the in the AR the markets uh in crypto assets regulation already that also already advice with regard to crypto is regulated. So I wonder if I as a lawyer actually need another license in the future in addition to what I already have. Oh my goodness, Nina, that's that sounds awful.

I mean it sounds awfully complicated. Wow. Uh Josh Josh, what do you think? So, and we were joking about this as you know before this panel. I mean, I think the thing that comes to mind for me is okay, this new wild thing that we're calling DeFi bumping right up against to these old things that we call laws.

And I think um you know, whoever mentioned earlier about feeling somewhat reminiscent of a few years ago with ICOs, I think that's exactly right. And certainly not speaking on behalf of other jurisdictions or or really even speaking on behalf of my own. Um but my anti my impression is just that you know we need to look through this label right and look at what's being done and particularly if you if you are in a jurisdiction that's looking at the transactions or for where you know the form is disregarded for the substance or should be I think we need to not lose sight of it just because people are getting excited about the term defi and because there is so much um frankly money there right Now another thing I'll just I'll just mention I mean and certainly I'm a fan of of this entire space defi included right that's you know I have a great love for this space but at the same time I think we do need to think or I would like to think that we should think about this is that you know we're in and I've said this in a couple of different contexts but we're really in kind of an intellectual bubble here right we all can like envision how this is working at least somewhat and what the laws are and you know what the what the stop gaps are. But when you think about people across the world who may be accessing finance, right, and they're like be your own bank. Well, there are some reasons why regulators are tasked with protecting people, right?

Protecting people who may not be able to, you know, accurately ascertain the risks or withstand the losses. And so I think it's just as we think about ways that people may be somehow affected by people being companies or projects being affected by legislation and whether that's a good thing or a bad thing should also think about you know the universe of of users and whether whether they should somehow be protected. Well, that's a great point, Josh. And actually, that leads me then to our first question, which is actually a combination of a few in questions on international law. One question was asking, could we have an international law done by treaty?

There are, of course, treaties that govern things like trade and other aspects of international interactions. And then someone else asked, well, if we can't do it by treaty, what about an international organization like ISO? Could they do it? So, panelists quickly, who wants to leap on this treaty? ISO.

Nina. Okay. I can say something because I was um in the beginning part of the ISOTC 307 group which is on blockchain and distributed ledger technologies. Um I think they they try to build their own taxonomy. Um and they try to get their heads around smart contracts about interoperability and stuff like that but not so much on the legal side.

Um governance touches it maybe a bit. there is a group on governance in in ISO TC 307. Um I actually looked once deeper into the question whether we could maybe apply the UN convention on sales of goods of international trade. um that doesn't apply because it only applies to physical goods. But I would love to see maybe as a result in a few years time out of this exploratory working group at UNIDA maybe uh a United Nations convention um on the sale of tokens.

You never know. But that could be like a long-term goal. When I looked into that two years ago, it was too early, right? I talked to a couple of participants and they all said, "Well, No chance and it's surely it's it's no quick thing. So Amandine is someone who belongs to a company who has to do this for a company.

What are you thinking? Are you waiting for those international law, international treaties, or are you just going to go forward? Oh, we're going to go forward. No, I mean for sure there's no way we can stop business just because something is not in place yet. Um, you know, it's it's not possible.

That's not the way people building the business actually think. And um and I think that's the main difference between being a lawyer in private practice and being part of the company is that somehow sometimes you're just like I don't I don't want to put barriers, you know, in the business. I mean this company is a great company. It makes employees. You know, it sells things which I believe are crucial for the crypto industry to foster like keep your keys secure.

If you want to be your own bank, well, the bank needs to be robust. So I truly believe that we are achieving something great at Ledger is participating to the whole security of this. This being said um you know sometimes it's true that I wish I could say well the law is this you know we have we just have to do this and I kind of say this because I'm just like well there's no law so I'm not sure you know whether we can do it or not. And I think it puts the legal people within this kind of company in a in an embarrassing situation. Um but because we are becoming more and more businessoriented we have a kind of very clever discussion with the management and the business people and we can move forward.

I think um not everything should be regulated. we should regulate what is posing a risk you know and if there is interest to to say to secure once this is done uh people are grown-ups you know and there is an amount of risk when you enter the crypto space there is definitely an amount of risk you know it's uh people think they're going to become rich you know in like one second so we do a lot of educational uh work for sure on our website um but there is an amount of risk you know and and I think we have to live with it the crypto world cannot have less risk than the financial world. There is a Fininsson report that was released today where banks are struggling with money laundering. They are still struggling with moneyaundering you know and we are trying to impose rules like the travel rule for example on the crypto companies but this has not shown that it would kill moneyaundering. So so I think we shouldn't be so risk adverse with the cryptos.

We have to bear an amount of risk. Now that's a very interesting point and that actually brings me to a question I'd like to ask Josh and Balin here. Someone was saying do we run the risk of legal overfitting and I think what the person meant is that there is so much the technology is moving so quickly the law is trying to keep up. We are trying to have a balance of which but as Almond points out there is some risk involved in the world and if we don't take some risk we also won't get the benefits. So, how can the law balance technology running forward, the law hanging back internationally?

How do you two see it on an international basis? How can we solve this problem? Yeah, I mean um I think not not only uh not only technology but also uh economy and society, the law is always behind and trying to catching up of course. Uh so when you have this kind of exponential technologies, it becomes more and more complicated. We were very happy.

I was very happy about telling you that we have uh finally the sandbox law in Spain. We also announced earlier in the speech that we have this proposal for EU regulation on crypto assets. Okay, we have something some literature to read but uh until the uh EU proposal of regulation will be law will be applicable law it will still take uh you may correct me colleagues but it may still take two years at the at the very least. Uh I also saw a question by uh the audience on uh whether it was directed to to me on whether uh I thought uh if I thought that the spend regulator the CMV uh would change their mind uh shortly. I I think that surely there will be movement because we have the proposal of the EU regulation.

But when this will be applicable, it will be later and uh not as fast as uh society at large needed and definitely not according to what Amandid said what players are demanding. This is my view. So this is a great point Bin. What you're basically saying is technology is always going to race ahead of the law. It sounds like the EU though on law and Spain, some other countries are racing ahead of the US.

So now I'll toss this to Josh. Is it going to be that technology in the EU law it's all going to c catch up here and be all good and the US will be where? So I mean well okay before I get into exactly that I just want to say I agree with what was said before about trying to reduce the risk to zero is not a good approach because we don't have that in other industries or you know that's kind of like the opposite of technology innovation. Um, but what I would say is I think, you know, as we talk about how this might work, you know, it's funny because with the US, and I'm not being a defender of US laws, okay, just a a messenger, right? But people are very critical because they say there's no clarity.

But actually, the counterpoint to that is, well, it's principles-based. It's facts and circumstances, and so you don't have to change it all the time. We've got the Howie test for example in the securities context which is over 70 years old and why can it keep applying because it's applying to the transaction. So I think there is a tension between clarity and being able to not have to refit laws every time. And so maybe a way I'll just throw it out there maybe a principlesbased approach right that some jurisdictions have adopted could be good.

Um that being said, I think the depending on how the jurisdiction works, if case law ultimately interprets those principles, um or if you know, however this is going to be, you may run into the same sorts of challenges about a lack of clarity. You can get clarity if you legislate clarity, but you might not want that because then you're you're stuck at a particular period of time possibly. No. Well, I'm gonna drop the one over quickly to Nina and then to Amandine. Lack of clarity.

Clarity, which is better? You want speed? Well, I think it's very easy. You know, that's I think the main difference between code and law. And that's why code can never be all of the law.

Um, law is gray, right? There's a little piece of black here and a little piece of white there. And then there is a huge gray space, right, in which we basically operate. And um and I completely agree with Josh that needs to be that case in order to have law adapt to uh new developments and and innovation, right? So it's the same with um reducing the risk to zero.

Um that will neither happen nor will we ever be able to make the law 100% clear. Okay. Um that's a very good point. Amen. gray space good bad well I think I can only agree with what Nil and Josh said you know I think companies should be responsible for putting in place the uh measures uh adapted to the risk they generate that's the exactly the exact AML approach if you generate risk you need to put a process which would reduce the risk and I think um companies would be way more responsible and way more compliant if they would be a little bit in charge of the principles they have to put in place and to follow up to the risk that they are generating.

So I'm I'm in favor of the gray. Okay. But the gray the however putting responsibility on the company it sounds like not just no not only on the regulator. I think you know it should be principle based as just said you know like you do this you should think about this now put the principle in place you know put the procedure in place uh that would address the risk and then you have to show that you you did a fair balance now Balin it sounds a bit like that's what's happening in Spain. Do you agree or disagree?

Um it should it is not uh every time that uh that uh the the violence is is is put in place. Um with some other areas of law we didn't touch upon it was not the topic of of today but for instance privacy law GDPR I saw some questions from the audience and excuse me Victoria and Daniel for it will take just just uh 30 30 seconds. uh it's it's principle uh based of course there's a lot of things to do in order to be uh GDPR private uh privacy law compliant but um as a player you have to uh you need to uh show and demonstrate compliance uh and you can do it in many different ways but you have to show that you did something that you thought about the problem that you addressed the risk that you try to minimize their risks etc. So I think that to many other areas of laws uh and to um other economic activities this should be also the the principle to follow. Excellent point.

Well I think then we're uh having Victoria and Daniel on to uh wish us well for the panel. I would like to thank our awesome and amazing panelists and to all of you for sticking with us throughout the end of the panel. Amandine, Balin, Nina, and Josh, please reach out to them. Umbrella, contact them. They are totally amazing, and I'm sure they would love to talk to you.

And definitely, whatever they have to say, worthwhile listening to. Thank you all so much.