BBW24 – Day 3 – Decoding Crypto Regulations: A Look Into 2024 Global Landscape

good afternoon everyone uh I'm maxter Gregorio from the the milen institute's fintech program uh I'm excited to bring you guys this conversation uh with this great panel to sort of talk about the the emerging uh like crypto regulatory environment looking into uh the end of 2024 going into 20125 um we're going to have a little conversation today first a snapshot of s of what's happening around the world uh some specific issues we're looking at here in in the US that relates to how defi is getting regulated uh how we're thinking about sandboxes in the United States and then if we have time at the end uh we might get to this election that I'm hearing about so uh first I I'd like to go to you uh evina uh the big news that's sort of coming out of uh the European Union this year has been uh markets and crypto crypto assets MAA uh it's uh the first stage was implemented this summer I understand the the next stage is getting implemented in in December uh but can you sort of walk us through what m is what that means for uh the European Union's crypto markets and uh you know how that uh ecosystem is changing in Europe uh hi so my name is saena and and today I'm presenting my personal views and insights as a researcher but I'm also having a career at the uh Central Bank of Lithuania so it's really exciting topic for me so Mika uh was approved last year and uh today we are finally uh coming through the uh last rounds of uh technical um con consultations on on technical standards uh so what what is uh what it means uh that it means that we will have um uh better C customer uh protection uh mea advocates for better Market integration and financial stability but that also means that uh crypto asset provider service providers and crypto asset tokens issuer issuers are coming into regulatory environment and vice versa that also means that traditional Market uh participants can enter crypto uh world so these two worlds are um blending uh and um and Europe is leading away oh so that's that's very excting to hear uh evina and like Megan I I wanted to turn to you and so unlike the European Union where you have this emerging sort of framework coming online uh uh the United States uh for the moment is is lagging in those sort of federal level standards and but we do have something coming down the pipeline we have fit 21 that was passed this summer um and then we've been seeing sort of some regulation by enforcement sort of defining the earlier course of this year and then uh some affirmative uh um excuse me cases brought against like the SEC for example and if you could just sort of give us a walkr of how that environment is looking in in the US right now and what that's going to look like moving into the end of the year sure um great to see everyone I'm a quiny native so it's very wonderful to be back home and you know if the BC High boys were still in here I was going to tell them I'm a notredam graduate but you know we we'll get them later um yeah so so we're continuing litigation by enforcement which of course is frustrating for everyone but there are some bright spots this year so it's not all gloom and doom um I'm sure everyone's familiar with the SEC V Ripple case where they ruled on summary judgment last summer so us crypto enthusiasts are still really clinging to that decision because judge Tores had some really good language about secondary Market transactions not constituting Securities transactions really focusing on look at the method by which something was bought and sold it matters context matters and um so we're all continuing to beat that drum um what we see from the SEC is that they are going after the centralized exchanges it's kind of their way of cutting off the snake at the head because they're able to really impact a lot of different assets just by going um a after the places where they're bought and sold so we see the action against coinbase the action against binance and the action against Kraken um unfortunately in both the Kraken as well as the coinbase actions that the the judges in those cases disagreed with judge Tes from Ripple and have said that you know at least under some circumstances secondary Market transactions meaning buying and selling on exchanges instead of buying or selling from the issuer could constitute Securities transactions those cases are Marching along and you know it's clear that that is part of the sec's agenda um the binance case has been interesting because um they actually tried to go after their stablecoin the B USD and we had a really good Court decision basically saying that a one for one Fe get backed stable coin does not constitute a security so you know we're trying to find the wins where we get them um and the court in binance actually really went after the SEC for the use of this term crypto asset security that they've been throwing around they're like that's a misnomer it's confusing we're talking about Securities transactions we shouldn't be talking about a token itself being a security um so just yesterday in filing their amenda complaint against binance the SEC actually had to eat some Humble Pie and they dropped a footnote being like well there seems to be this confusion about this crypto asset Securities word so you'll notice we're not using it anymore in here so you know they they're having some missteps as well and I think overreaching and and and kind of trying to do too much so I actually you know in otherwise Bleak landscape you can take some positive little things little winds that we're having um that that really make me hopeful for the next year and as you mentioned Max um some some industry participants are also starting to to play the SEC at their own game there's been three different affirmative preemptive actions filed in the Western District of te Texas one by consensus that you're probably familiar with and some other ones where they're basically seeking to get declaratory judgment from the court ahead of time that the SEC is overstepping that they're engaging in improper rul making that they shouldn't be regulating the secondary market so you know for all of those Reasons I'm seeing some bright spots and you know kind of punching the SEC in the nose a little bit which I think is is is appropriate here and um some good energy in the industry and you know where a lot of this regulatory stuff is is of and gloom and doom I I want to tell you 2024 from the perspective where I sit which is helping issuers and developers develop their programs it's a it's a bull market people are excited people are launching tokens again this year you know the spot ETFs are I think giving some additional fervor to the industry and I completely agree with the in that while we don't have you know a lot of Regulation right now it really presents an opportunity for people to push industry forward doing it wisely doing it mindful of the available guidance but but not being styed by a Draconian regulatory regime so it's kind of make hay while the sun shines or ask for forgiveness not permission but I'm really really really thinking thinking positively about the next year well that's that's good to hear Megan that's a great pep talk and so like writing off of that Tom like I I wanted to me was was talking sort of about these actions that are happening at the federal level looking at the federal court rulings but uh something that you and I talked about was uh you know mo Moon pay is regulated you are a chief compliance officer you have to be complying with someone's rules so where where are the rules here in the US coming from yeah I think that's the reframe that I try and make on all of these conversations is we often talk about where's the regulation I'm here to tell you it's there uh it might not be fit for this industry uh and that's a headache that I deal with on most days but in the US for example I'm regulated by over 40 Regulators uh those are State Regulators uh money transmission licenses and uh msbs and you know that's a lot to deal with when we talk about m one of the great things about m in Europe so I oversee kind of the global program is we right now have to register in different countries within the EU to comply with their AML regimes the beauty of M is it's allowing you to centralize uh under one registration one license um and gives protections and lends out rules that are broader than just anti-money laundering uh protections which is important anti-money laundering is you know incredibly important but customer protection is huge and it and it creates a level of playing field there so um yeah we're we are dealing with a lot the ones who are doing it right are um have to deal with a lot of regulators a lot of regulations um and I think what you're seeing in more and more is is throughout the world these rules are coming into play the SE shells normally you know a jurisdiction most people think of as like completely unregulated they're putting in a vast regime that's going to be implemented the end of this year so I think that you know the the actions within the US within you know hopefully more in the US we'll get a little bit more cohesiveness um but throughout the world you're seeing more and more kind of shut down of that you know unregulated space and you know it's it's cutting out the players who haven't been playing by the rules that's excellent Tom and like I I think sort of building on that conversation Ryan like we've seen some Regulators at the state level in the United States like really take the lead and I I think like the The Shining Light has been like New York DFS which has done a a great job in setting what have almost become Global standards uh but like where else in the US are you seeing like uh like state level uh uh Innovation happening with as far as it comes to regul Regulators stepping up to the plate yeah well uh so I'm in Vermont and you know GBA uh you know sits as kind of an observational role looking at what these things are doing uh but in my activities as an advocate for the technology and as a communicator um we've been very successful in finding where existing legislation kind of fits and where some of those changes do need to happen so very early on there were adjustments to the money transmitter laws to reflect cryptocurrency there was acknowledgement of things around blockchain and cryptography as having evidentiary uh validity in the courts and then uh continuing on uh 2018 is when I got particularly involved uh or when the bill got passed that was involved in that established the the idea of a blockchain based LLC that extends the liability protections of an LLC to an identified participant so it opens up more of a dynamic definition of that and enables this concept of a dow uh the other piece of that has to do with fiduciary responsibility around data and that's where it gets interesting because to earlier point a security is a security whether you call it a token or not and if we actually start treating data as an asset then that starts to become a security as well and it does open up certain purviews on the other side of that the other place where Vermont in particular is a leader and there's other global leaders in this space but Vermont is arguably the number one domicile for captive insurance companies which if people aren't familiar just real quick insurance is risk averse so if you're talking about risk mitigation Solutions trust related Solutions um captive insurance is actually where it happens and this isn't new cap is you know decades old in Vermont um but Vermont is the only state Association that has DC presence and so those laws lead the way for other captive laws and our competition isn't even in the States you know Vermont's competition is Bermuda um global companies position their captives in Vermont and the nature of that industry in my opinion what I argue to many people is that there's actually a framework there that's very conducive to blockchain and it sits in parallel with other leadership areas in Vermont regarding B Corps and uh uh employee ownership models and uh and and I think it reflects other models from other countries like Norway and Scandinavian countries and what we're seeing in the Eastern block countries embracing this so that's where I think um you know Vermont actually has some very interesting legislative parameters some Independence Clauses from when they actually join the states that still impact the way things happen there and uh that has made the captive regulatory body and that environment very enticing to Global operators and now it's a matter of both the people getting knowledge to at least demand this technology whether they fully understand it or not to recognize the democratization the importance and truth and demand that the global entities use this as well as these entities really realizing that it is actually in their best interest when you start calling data an asset they start recognizing liabilities and they start exploring ways to transfer those liabilities in various ways and that's our opportunity to say hey while you're at that we need these tools in place so held accountable and transparent and censorship resistant I know and this is if I would have been this time last year I don't think I would have had such an optimistic uh uh Global breakdown of the the crypto regulatory environment you know whether we're looking at what Megan had from the courts or what's coming out of of the European Union the way that the the states are approaching it um but so I appreciate that and that's it's good to hear but I what I'm interested in sort of turning to now is sort of these these issues that are coming up around regulations as to to defy uh like an area that's a little bit more sensitive and and as we've done so much to educate uh the uh Regulators around the world on on what the centralized uh exchanges are what the traditional elements of of of of the digital asset Universe are uh it's still there's a little bit of a gap there and uh just this week the house of uh House of Representatives we had a a hearing on Defi and DC uh house financial services and witnesses there you know voiced some concerns during their testimon like we we're seeing like developers that are being come after uh you know being um sort of unwittingly held responsible for controlling compliance of some like products that you know they may or may not necessarily uh feel the you know it's it's murky there's ambiguity um and I just wanted to like go to you Tom and say like how much education do we need when it comes to defi as an issue to sort of like close that Gap with uh with Regulators I I think there's still quite a bit I mean if you think about kind of the evolution of how we got to where we are it was a lot of Education right um we had to get Regulators uh and banking Partners right um comfortable with centralized crypto right uh the the the standard um exchanges that you have and how those operate and that's taken years now right we've said we have a square peg round hole now we've introduced this defi aspect and now I'm not a square I'm a triangle what are you going to do for me now and you know so Moon pay for example offers a lot of the same services that an exchange does but we do it in a decentralized non-custodial fashion and so the problem is that Regulators see a square peg every time and that's what they want to do and we're starting that education cycle again to get them comfortable with it and so a lot of that work is you know my team my colleagues in the legal team you know who work really closely with regul Regulators um policy makers to to educate them on what this stuff means day-to-day and as we go through regulatory exams The Regulators are like looking at it feeling it touching it using it understanding the flows and that it's just unfortunately going to get take time I think where it gets really interesting is the developers in the industry are moving at light speed and so by the time we figure out defi there's you know it's not going to be a triangle it's going to be like a trapezoid you know like this is going to keep going so I think this is a cycle that we'll keep going through and we just have to you know have patience um yeah no I I I agree with you Tom like I I think that that education component will require some patience and but something that you mentioned Ryan when we were talking earlier was that um like you see though that there's a set of rules that we have that could already apply to Defi and like something I wanted to ask you is like how how much do we need like a new bespoke regime for defi itself uh when it comes to Smart contracts or other elements of that ecosystem or or is can we work with what we have it's a great question and one thing I want to reiterate is it was 2018 when we got act 205 passed there are less than 100 entities registered with the secretary of state to leverage this law so to a certain extent there's an education Gap in people that are building in this space actually realizing where the opportunities are to build with Regulators um the other piece is more recently act 110 uh this took a couple of years and it was through direct engagement with industry to have the conversation with folks that were really saying the same things they just don't realize where the technology connect happens and that resulted in us having language in the law now for the use of parametric contracts which is really actually the smart term for smart contracts because it's just techies that made up smart contracts but smart is parametric it's when you are looking at two pieces of data and making an automated decision so we have parametrics in the law and we have an established way for that to be utilized and in fact we have companies that are utilizing those Services globally and they're seeing their pth paway into the US market by establishing this relationship with the industry influencing the language and supporting The Innovation and that's not even officially a Sandbox but what I will say is that the captive industry is not always 100% Tech forward but they are Innovation forward they are Innovation forward because they have innovated insurance and it's not a new thing like I said 35 years or so as a Vermont history but you know this goes back to you know shipping companies coming up with arrangements to cover for the potential loss of caros from in the UK so this is not new Concepts but again I always tell people you know like if you're in the ethos of blockchain and decentralization and sharing of knowledge guess what Librarians have been working on that for a long time yeah so we're in the same camp we're just not all talking to each other and that's the biggest thing is that participation to ask your local Regulators to look into this to look into the resources that are available to them and and ask others to look into it themselves to really go through that inquisitive process and thank you so much for that Ryan and so we've seen like there's a there's a gap there with educating Regulators we have some movement when it comes to States like Vermont to address some of these issues in dii but like Megan we talked about like the regulation by enforcement conversation but I was wondering if you could go a little bit deeper into some of those actions that involve uh uh the defi space whether it's uh Dows or uh developers defi yes so um I think it was publicly announced mon months ago that the SEC issued a subpoena to UNIS so um we you know we're all very much aware that DVI is kind of the next thing on the sec's radar but I think to understand kind of how The Regulators are going to deal with that you can look at positions the uh cftc has already taken positions the doj has already taken and frankly looking at some of the private litigations as well in terms of what you know class actions Visions they're taking and of course the problem with defi is who you're going to blame right it's inherently decentralized there isn't some manager that you can point to that has their finger on the red button so all of these different litigants are getting very creative you have private litigants that are suing the developers being like you developed this protocol that has defrauded me and therefore you're on the hook um you have private litigant suing the investors Venture Capital investors that provided the kind of the front-end financing saying we thought that this was safe because you were involved or you've touted being part of this ecosystem and we think you have some control over it um then you have like the CF TC took the position with regard to Uki da that every single member of The Da was basically the member of a general partnership and the idea of just participating with a governance token voting yes voting no voting at all somehow made you jointly and severely liable for things that happened um so all of these things are going to be playing out in the court system I guess the one other thing I'd mentioned from the doj um they're obviously very concerned about like money laundering risk and and terrorism so privacy protocols and decentralized um mixers are also coming into the regulator's ey so you know I don't know how to fix these things I'm I'm very very curious to understand I know some of the discussions in in Europe are further along about like what do we do with Defi and I really think that that the United States should keep their eyes wide open and engage in Cooperative dialogues on these things to try to figure out what to do with the triangle um because I I I think otherwise there's this risk that you are you know scaring the developers and scaring the Venture Capital investors and these are two essential pieces of our ecosystem and you can't have that kind of innovation being stifled because they're worried about being liable if something goes wrong and so building on that I wanted to go to you Aina next and ask the in MAA the European Union's regulation that's come out there is sort of a a carve out for defi at least that was my my understanding but like what is the European Union's approach to to defi regulation as your sort of regime comes online uh so overall approach from European Union is to um find to create opportunities for better better funding and financial services meaning that um we taking this approach uh like same Services same risk um same rules uh so we are not limited to any kind of technology or any kind of uh um uh um Financial intermediat forms but since m is just first attempt to regulate this um a crypto Market it is primar designed for issuers and uh crypto Services providers meaning intermediat but so uh these fully decentralized platforms uh falls out out of mosope but during the last uh consultations um the uh discussions are increasing about uh um the different degrees of De centralization um meaning that uh now esma uh takes kind of um different approach uh and instead of a fully um uh pushing these def platforms from the mikos scope and now we are saying that we will go by Case by case scenario so it's uh Regulators are learning even uh during the adoption building the plane while you're flying it um is that's being in crypto um like U Megan I wanted to go go back to you and and something that's of come up again in the United States our conversations about our regulatory sandboxes here um I know that uh for commissioner SEC commissioner Hester Pur proposed sort of a a safe harbor provision we put it in our our milk and Institute uh letter of comment on the discussion draft that eventually became fit 21 as sort of something to consider building into that legislation but I was wondering if you could sort of talk about the what that safe haror proposal looks like in in the US or where conversations are right now or maybe how it's changed you know over the last couple months sure so um sure many people in the room are familiar with Hester Pur crypto mom big fan of the industry I wanted to take the opportunity to shout out to my crypto mom who's in the audience um so as far back as 2020 and 2021 Hester Pur has been talking about this idea of a safe harbor basically give the industry a couple years to develop these protocols to try to decentralized to try to build to try to prove a proof of concept and then if they kind of cross the Rubicon on let them proceed without registering so it's taken a new form in the past couple of months and really in connection with some forward progress that's been made in the UK where they're trying this regulatory sandbox so Hester Pur put out some statements in May and then again more recently and the idea would be that the US would work collaboratively with the UK to really try to develop a place to look more closely at how do we issue how do we broker how do we clear these transactions in a way that that is consistent with the regulations and the idea would be to have I think it's a three-year period where if you stayed under a certain volume and under a certain number of customers you could kind of exist within this framework and everyone could kind of study it and play around with it and try to get it right and the ultimate goal on the other end of it would be of course getting a no action letter and getting some kind of comfort from the SEC that you'll be able to proceed with this thing that you've kind of experimented with over the three-year period and let it grow without without fear of you know get getting an enforcement subpoena um so you know she's very clear she said that she you know she would like to regulate by a beach rather than a Sandbox but you know this is a start um and at this point it's still very much at the proposal stage but definitely soliciting input from The milen Institute and other you know thought leaders about about how to get this right well talking about soliciting input I wanted to go to Tom and ask so as from the perspective of a a a a web 3 a crypto business uh are are those sandboxes something that that you're you you're using that you you want that are valuable to you like what's been your experience so I I think it depends I think you know for an established company that's already as I said regulated um and and having to meet a lot of requirements which have a a hefty compliance burden if you're layering that on top of existing requirements that's just adding more and more work um and so from a business standpoint that becomes you know you're kind of overloading the compliance burden is overloading a business worth in a particular jurisdiction I think where it really comes into play is smaller startups that can really participate can be likely more Nimble um and can be starting really from scratch to work with the regulator um and kind of goes back to that you know what I was talking about before where it can be used to educate Regulators on the real Cutting Edge stuff that's like in real time that if you're building this here's how we would do it within the regulation well here's why that doesn't work and having that back and forth I think that that you know becomes really helpful likely more on that or on jurisdictions who have up until now said if it's crypto I don't want to touch it right well thank you so much Tom that takes us exactly at a time I'm so sorry we didn't get to the election um but uh thank you guys so much I could have talked with you all day that was wonderful [Applause]