Can Regulation Be a Game Changer in Crypto? | European Blockchain Convention

foreign [Music] okay so thank you everybody for being here we are here with uh Cote de Monteverde and create on blockchain Central is Excellence on Saturday Francisco marotto had a blockchain and digital assets thank you for being here we have two bankers and a lawyer this is going to be a party okay so when somebody told me that we were talking here about Micah I thought oh cool minerals I love minerals but no we're not talking about minerals and then somebody told me okay we are talking about Dora Dora the Explorer I love Dora the Explorer with that blue monkey the crazy monkey but no we are not talking about Dora Explorer so we are talking about regulation Revelation who in in the European Union is setting names for regulations like Micah and Dora I think they are they're having a lot of fun setting setting regulation regulator names so okay let's talk about about regulation so Frank what is happening in crypto right now is this a good time for regulation in crypto well it's a pleasure to be here with all of you today again in the European blockchain convention with lots of connections and learning about new projects and activities from all the players in the ecosystem what is going on I think we all know what is going on we are in we're in the middle at least I don't know if it's in the middle towards the end I hope so or towards the start of a big deep and cold crypto winter we have gone through many crypto Winters in the past this is nothing new and we have survived all of them so we hope that this is the case and we can continue moving forward with this great technology and the use cases that we need to build on top of it but here we are in the piece one at least in the history of this new market an emerging market and why we are suffering so much while because in this last bull market we saw how institutional money started to pour or to get involved in the crypto markets and this was something great because it brings liquidity and liquidity is needed to make the markets more mature and more stable but well we have seen how this institutional and institutional money that entered in 2021 has flown away with their problems and the uncertainties that we have seen during this last month and we are now in the levels of 2017 more or less around capitalization and price of the cryptocurrencies and and that's in 2017 we saw Another World Market mainly driven by retail not by institutional money and that's why that crypto winter was a bit less deep and intense no so what do we need to do to attract again an Institutional money into the space well a solution money likes certainty they like stability and something that brings this characteristics into this new market would be regulation so yes I think regulation is needed is needed to attract again institutional money backed into the market and it's needed to protect customers we are seeing how retail customers are suffering with this problems and bankruptcies and getting stuck stuck in in all the bankruptcies that we are seeing in the on frauds that we're seeing in the industry so regulation is needed for both institutional money to to go back to the ecosystem and Retail to be to be protecting what are we seeing in the in the world around crypto regulation well we are seeing it that it's coming at different speeds so we see some countries that are moving first such as Singapore or Switzerland and they have already regulation in place that is allowing institutional projects or money to to step in the space we are seeing others that are following like the European Union with with Mika and and the pilot regime and other regulations that will impact blockchain in space as we will discuss during the panel today and we are seeing um other countries which are still waiting and they might wait until they have clear regulation maybe coming from the European Union or from the US and coping that the regulation and I mean the Europeans with the Europeans are very good at innovating in Revelation and then exporting it to the rest of the world let's try and imagine this is good but this will be better to innovate also in technology and business and new business models no so yeah we have seen different speeds and we are also seeing different directions so we are seeing um some countries like China regulating in negative so they are forbidding the use of crypto and we are seeing other countries such as the European Union with with Mika or the United States that want to bring regulation into this into the market but allowing the market to to move forward or to keep going you know um in the U.S Administration Biden has extracted that um the supervisors of the country are relatives of the country starts moving forward but they haven't done so yet in the European Union we are moving and we are just about to to have Mika in place you know in April let's hope no so regulation is coming and let's hope it helps prevent these crypto Winters that we have suffered and maybe if we had regulation in place we could have avoid avoided these problems of bankruptcy and fraud because there will be many more control mechanisms in place and the players in the space would have to implement a control and Risk Management Solutions and that my bad players might be not allowed to operate in the market so yeah in general I think regulation will be will be good it will attract liquidity and it will help this new market this energy Market mature and come closer to the standards of the traditional financial markets I don't know quality if you have another view or I totally agree with you all of you know that Innovation always is faster than regulation but some countries are doing it better than others as well and and I have to say that this regulation should be clear and harmonized because if not we see things like like what is happening in the U.S last week with Kraken having a fine because things are not clear then we've got the bus the finance USD stable coin which suddenly it's a security but in Mica stable coins are like Imani so having also a harmonized um regulation helps and being super super clear that it's something that I see that there's a lack of okay so we have a lot of regulations Micah Dora Memphis 2 what's Maria what's the application feel for each one of them good afternoon make us make us understand what all this Nick's name have in relation with me Khanna well let's try to get straight to the point when the crypto asset is a financial or a security or a financial instrument then there are regulation or market for financial instruments are applied for instance a method and Method too but when the crypto asset is not the it's not under the definition of financial instrument or security then is when Mika will appear or on a stage and Mika tried to establish or Define the uniform on the needed this need a uniform regulation for those who wants to offer a crypto Assets in the market as well as for those who wants to provide any type or a specific crypto service providers for instance exchanges on a crypto on custodial wallets all in all I think that Mika will help or what it going to introduce in a market is a package of rules um that will try to protect consumer give legal certainty for institutions who wants to start working in Orange be providing this type of services and also to reduce and to avoid the market manipulation and financial crime and finally let's explore Dora uh well um what Laura introduced also is a package of rules in order to um guarantee or to improve the operational resilience of uh Financial entities specifically uh regarding the network systems and ICT system and maybe we can ask on why we have to apply Dora if we are talking about crit crypto for for so here is there the answer um here is where I find the the clue is that because uh crypto service provider as well as those who wants to provide a crypto service have to comply with a set of obligation introduced by Dora okay good so Maria I don't know a friend you have yes yes I would like to comment that and I mean hearing to what Maria was saying and lots of regulations coming to the crypto Market space those that we have been in financial markets for a while we know that after 2018 20 sorry 2008 crisis financial crisis the financial industry suffered a regulatory tsunami no lots of new regulations came into place and we had to and we struggled to adapt and to invest a lot of money to be able to comply with all these regulatory tsunami in order to make the financial markets more stable and and more better for the for the users so now we are seeing the same thing in the crypto markets we are seeing how after a big Financial crypto crisis or crypto winter a regulatory tsunami is coming in Europe has started in the US it will come in the following months so so now the crypto industry has widely needs to adapt and start investing and preparing for this regulatory tsunami and it will be difficult I mean it won't be easy to adapt and to be able to comply with all these regulation that is is coming will that tsunami clean all the the the the companies the the projects that do not bring security to to to customers and to companies well I don't know that depends more on the on the on the capital they have to be able to invest so they might be very good projects some companies that are good and that they will be swiped from with the tsunami because they won't be able to access to more investment in order to be able to adapt and comply there will be bad actors that have a lot of capital and we were able to resist and continue living then it's a matter that the supervisors are ready prepared have the knowledge and the resources to be able to monitor the market identify these badactors and remove them from the ecosystem or don't give them license to operate so it might be Market will will reach a balance let's hope let's hope okay so Maria in in the finance sector and talking about regulations what are the milestones and requirements for for for the coming years for the coming months well uh talk if we focus on Micah regulation I think we can see to to site on Mica regulation the first uh regarding the issuing or putting in play on the market at crypto assets and I think in this way uh I will I think it's we can explain this like awesome Mika defined for those issues those who wants to offer to the public crypto assets like a kind of traffic light a compliance regime for instance a red highest risk EMTs e-money tokens so those who wants to offer introduce into the market in money tokens they have the strictest regime um for instance those of various specific entities are going to be able to introduce this type of offer this type of crypto uh crypto assets second will be orange mid and it will be the ascent references token um this uh it also have a strict regime to offer this type of this kind of irts um for instance uh it is necessary to provide or to comply with an authorization authorization regime as well as for instance to have um the white paper has to receive the approval of the uh and or a supervisor Authority team and finally but not least the agreeing the lowest risk which is all those crypto assets that are different from RTS or iamts that have a kind of software um compliance regime for instance they have to comply with a specific substantive white paper whereas they don't have or they don't need uh the approval of the supervision and the the other hand or the other side of Mika is crypto service provider for including exchanges or custodial wallets and in this case uh there there is also a regime to a compliance regime to to follow and maybe we can extract it let's have three blocks of obligation the first one to be able to offer this type of a crypto Services is necessary to to have what is what we call the Mika license a specific license unless you have a specific uh previous uh license for example for as an entity as a bank in entity for instance in this case it's it will be only necessary to communicate to the supervisor that you have the intention to starting to start providing this type of crypto Services second block of obligation and it's like a common for all those crypto service providers have to comply with for instance they have to act with honorable very app transparent with transparency I'm very and always in interest of the customers um second they have to have and comply with a specific governance regime and finally and not least it depends on the um type of the crypto service provided done in these cases there there will be an extra obligation let's let's make an example let's introduce an example if you are up custodial wallet you have to of course comply with the authorization obligation of course you have to act honestly and you have in all interest with your client but also you have a specific obligation for instance you have to um have a custody policy and also you have to um to hunt to to have the um the the crypto assets of their clients in a different account in a very differentiated from your own crypto uh from your effort your own crypto assets so all in all I think that all these measures introduce legal certainty uh protect definitely the customer I'm very focused on how to protect the customer and be transparent with the customer and also try to professionalize in a way the crypto sector another and at the same time give um certainty for those a crypto effort for institutions that want to start providing crypto services I insert somebody in the audience is thinking right now oh okay so Cody how will affect Micah to next developments in the finance sector is it enough is much enough for for this um well let's see um Micah is going to have to impact in the financial sector also in the crypto asset service providers for us in our case as Maria said um we will need a license that we already have So that obviously it's it's an advantage because Micah is trying to regulate crypto assets similar to financial assets that in fact there are some assets that are tokenized Financial traditional instruments and they are going to be regulated with the current regulation that we have for those with um with method that means that um tokenized bond is a bond and tokenized shares are shares right it doesn't um I mean it doesn't mind what the technology on the line is is there right so you're already covered by regulation that's that's it so so right now financial institutions will need to start thinking what opportunities they are going to have and how the landscape is going to change um with mica obviously there's challenges because we are going the financial sector to be exposed to new risks that we currently don't have right um but we can see for example in Switzerland that it's a super crypto friendly country they already have regulation in place since 2021 and the financial sector is offering a crypto Services I mean [Music] um you can tell us right this is a good example BBVA so with Micah in place that gives confidence to the financial sector to start offering um crypto products as well and also it opens the collaboration with the crypto asset service providers because Micah also um will um will ask crypto asset service providers to appoint a custodian for the assets of their customers and those assets are not only crypto assets that they can custody but also there's cash and there's financial instruments and for that they will have to collaborate with investment firms that can custody financial instruments and with banks and can custody the financial instruments and the and the cash so collaboration is open there um but the huge impact is going to be for crypto asset service providers because they are going to be regulated similar as banks are and and it's tough I mean you need to have all the risk management procedures you have to ensure that you have certain levels of capital or get a an insurance getting an insurance for crypto assets it's not easy as some of you know right and they have to also comply with anti-money laundering procedures they have to have business continuity plans blah blah blah I mean that's a lot of work some countries in Europe have already kind of Regulation licenses like in France and Germany and and there's providers that already have that type of license but um they should start working on how to adapt to Mica because the gap between that legislation and Micah could could be wide so um so I think that the impact is going to be a very very big there and you were saying if there's going to be a tsunami probably because there is a lot of effort for for getting that license and and regarding Mike also it's worth mentioning the the timeline um the finance final text of Micah was going to be approved by the parliament uh well ratified in December it was postponed to February and now it has been postponed to April because that text has to be translated in more than 20 languages and it's very very complex so after it's ratified and it's published in the official Journal of the EU then there will be like 20 12 months um to to put into Force for stable coins and 18 for for the rest so I would say that in maybe less than two years two years yep you will need the license uh right you have you have time and start working on it the last thing if it's enough or well um Mike um I think they were hiring a little bit to get the final text because all the well you know all day prices that we are seeing with with crypto um so it's not covering nfts it's not covering D5 lending staking those what will happen with defy so so they did a great effort with Micah and I see that the UK that it's opening the consultation right now for regulation of crypto assets is going to get inspired by Micah and introduce Improvement so that's also great so we will get something from UK probably then we'll get Micah to be inspired by the UK there's like an iteration too okay and hopefully we Inspire the us as well yeah I mean Christine Lagarde was saying yes a few weeks ago that we need Mica too so we we have not signed Mica one and we are thinking in my katsu so it will come it's it's needed I mean Mica one is a good first step for the basic Services is once and service providing mother Scotty was saying many more things to cover absolutely so koti what what other regulations will affect your projects um I would say that there's three more regulation support from my camp there's a the so-called travel rule that already applies for the financial industry but the global antimony laundry Watchdog the fat has expanded it to crypto asset service providers so that means that in each crypto transaction between um crypto asset service providers they have to identify the source I mean the origin of the transaction and the destination identify with personal information to make sure that they they are not involved in in any suspicious things sanctions Etc um that's that's uh I mean I think that's another big effort um and it will cover any transaction I mean Without Limits in case of transfers that are coming from or going to unhosted wallets that means um cold wallets for example metamask Etc um the the receiver or the sender has to prove that it's his own wallet for an amount above a thousand Euros that's going to provide um well a lot of security also for financial institutions that are working with crypto asset service providers I mean ensuring that they comply with anti-money laundering regulation that's a one the travel rule then for banks we've got the Prudential treatment of crypto assets I mean Prudential treatment of assets means that you have to have some standards on how to classify value and manage assets I mean we already have that for traditional assets but it was needed also for a crypto assets and as well so we can ensure Financial stability we can set the appropriate levels of capital so we can absorb potential losses and and thankfully after some reviews and I think that that the text is reasonable because it's applying like um same risks same rules so that means that for um crypto assets that are for example tokenized financial instruments they are playing the same rules as as a financial instrument in itself it has um also a stable coin with a stabilization mechanism as well um I mean it's it's the same rules as before they are not penalizing the banks but in case of um of unpacked crypto assets or those ones that don't have that stabilization mechanism do you think this will affect to stabilization on bitcoin ethereum pricing no I mean this is just on how Banks we have um to ensure that we have the the required level of capital to protect our investors right um so if if there's a loss that we have that Capital needed to absorb it and and that's something that we already do with traditional assets but we didn't know how to manage the crypto one so we already have this standard of the or these rules that has set by the basal um committee with a more risky assets uh there's a more conservative approach and we have some exposure limits I mean we cannot have uh all the crypto assets that we would like to there's like a I think it said that one percent of tier one Capital uh so I mean some restrictions but I mean it's a regulation that was needed and and the last one because I know that we are running out of time is them is a pilot regime which is kind of a European sandbox um where um Financial Market infrastructures just announced yes in fact [Music] in March 23 I mean applications will be open it's going to last for six years and financial Market infrastructures have like a safe environment to test DLT applications more focused on on those um companies that are doing a trading settlement and settlement systems multilateral trading so I think that will help to move towards a secondary market for tokenized financial assets and those are mainly the other three regulations I don't know if Frank you want to add something else no no I think those are the most relevant at least for uh from a bank bank's perspective not a pilot regime also enables the use of tokenization of traditional Financial assets which is something that was needed in order to move forward and yeah the capital requirements which has a strong impact because it penalizes a lot the banks that has crypto proprietary position and that's a problem if we want to build a trading desk or complete with exchange use and it also impacts the way we invest in eventual Capital because the investments in crypto companies will also have this penalization in capital and that's a challenge for us because they will need to be much more profitable in order for us to be able to invest in them these are ways to protect the financial industry from from you know crisis in the crypto Market crypto ecosystem I think they have started very maybe to restrict well safe in the future we are able to make it more more flexible as the market moves toward towards being more mature more secure the market will will regularize itself okay so we have only one minute so in two sentences good regulation be a game changer in crypto closing the loop in the in in the panel name um I don't know if it's going to be a great impact but it's a positive impact for sure because it's going to provide more confidence in the whole system yeah I want to to emphasize what I mentioned at the beginning healthy markets needs liquidity and and protection and security and this is mainly brought by two factors institutional money and regulation so yes it's needed Maria from my point of view yes because um regulation is is going to help to the crypto industry of course you're a lawyer I'm a lawyer definitely so of course I'm going to help you and because I think it regulation is a liver to help um to introduce in the market as legal certainty protection to the consumer and also to professionalize the the sector okay so thank you for being here thank you everybody for attending for listening to to us and see you in the market thank you thank you foreign