Regulatory panel: Regulation and Innovation: Policies, Challenges and Future Trends | ETHSofia

[Music] hello all and thank you for being here uh even though it's a Saturday and it's 10:00 a.m. um so yeah we really appreciate the interest uh it seems that regulation is actually a more interesting and relevant topic for the people here uh that we that we thought yesterday evening uh um and I'm really glad to have this great panel here so I will go straight to the Chase and start asking questions so that we we'll have also time for you to ask your questions after our discussion just before I forget there are two mics uh between between the chairs you can use them to ask your questions afterwards just go there and uh they will be switched on so thank you for joining joining us thank you for coming to Bulgaria those of you that aren't originally from here uh so Jonathan I'll start uh with you because you are let's say quite informed about MAA that's the marketing crypto assets regulation for those of those of you that aren't familiar and that's the big topic for this year I would say if crypto was had a Chinese calendar this year would be the year of maika so Jonathan please tell us about maika uh and basically what now the crypto asset issuers offerers and the Services offering crypto asset related services will need to adapt to and basically what all of us as an industry uh will experience seriously thanks and good morning everyone thanks for the invitation once again I like to split MAA in half when uh I talk about it and describe it so I have the first half which uh covers issuers those doing offers to the public and those seeking admission to trading of crypto assets onto trading platforms and then you have the second half which talks about and covers crypto asset service providers now we've already seen one part of MAA becoming applicable earlier this year in relation to stable coins that is e-money tokens so stable coins that reference one official currency like usdt and usdc and also asset reference tokens which essentially are a Catal category for stable coins and therefore they are stable coins which reference an asset or a basket of assets or even a basket of official currencies the proper definition is that they reference or stabilize their value rather by referencing any other asset value or right and this in my opinion opinion includes certain uh crypto assets like wrapped tokens but also for instance crypto assets that reference the value of gold or Commodities so far we haven't really seen that much of an effect in terms of the applicability of the first part of MAA we've only seen a handful of issuers who decided to let's say obtain the necessary regulatory approvals under MAA in order to uh conduct an offer to the public of their stable coins and most notable one is circle and the reason for this is because only those issuers who are looking to conduct an offer to the public or seek admission to trading of their stable coins need to be authorized in compliance with maup there is often the use of the term me compant stable coins which I think is a bit of a misnomer because in reality there is no such thing as a me compliant crypto asset if anything it is the issuers which would have to be compliant with MAA if they do an offer to the public or otherwise they want to have their token admitted to trading listed for trading onto a trading platform form now there's a lot of debate going on on what it actually means to offer a crypto asset to the public the definition of a crypto of an offer to the public is essentially a communication in any form to a person which has sufficient information on the terms of the offer and the crypto asset being offered so as to enable a prospective holder to decide whether to purchase it or not so it's not just any communication it's not just any let's say document it has to be a document which has terms of an offer information on the crypto asset and enough information to allow someone to decide whether to purchase it or not so in my opinion if you're simply issuing a stable coin and you're not really offering it to the public in the in the union being in the European Union the European economic area are that you would not really need to seek authorization under me so that's with respect to stable coins and let's say General concept or the first half rather of MAA that I was um talking about casps on the other hand I believe that if they really want to continue having a foothold in the European Union then they must seek authorization under Ma and one of the main challenges that they will will face is that most let's say entities which are aspiring to be CPS so far have only been regulated under n AML registration which I believe is also the scenario here in Bulgaria and an NL registration is a far cry from EMA license where for all intents and purposes EMA license is very much equivalent to holding a license as a financial institution you have credential requirements stri government governance requirements as well operating rules to have in place um a lot of other um procedures like even complaints handling procedures must be very detailed um and there's a whole section dedicated to them in Title 5 so all in all we're talking about a very different setup that service providers must have in place in order to be licensed as CPS and I very much fear that the there's a lot of service providers out there which are perhaps not fully aware of how big of a jump this will mean and once again this my opinion I think we'll only see very very few casps actually being licensed in the first quarter of next year both because of this let's say let's call it even perhaps a bit of apathy or unawareness but also because most national competent authorities this will be their first time actually um um undertaking a crypto licensing process from their end and I do suspect that most national competent authorities are not yet that well prepared so that's by way of a bit of a brief overview of let's say MAA and some of the challenges that we might be facing so spot on thank you so much Jonathan um and I will step on what you just said and confirm that indeed in Bulgaria what we have had so far is a registration under our local ml uh law which um there was this discussion previously in like in the crypto lawyers Community uh some saying that okay this would not be enough for the so-called grandfathering Clause under Mika to be effective basically the grandfathering Clause would allow projects to still uh operate and provide services within the member state where they have had this previous registration so some experts myself including I have to M uh we're saying that no this AML registration is actually not enough to fulfill also what uh Jonathan said but then the European Security's markets Authority published a Q&A on their website so the European commission actually said okay we agree with what whatever the member state had decided is enough so this what even if it is an AML registration it would also be um uh relevant for the application of the grandfathering Clause so now we have the same system however uh there is quite a lot of uncertainty and I'm slowing moving to my second question to Diana by saying this uh around how the grandfathering Clause would actually work uh because theoretically all projects that have such registration by the end of this year would then have the opportunity to work uh within the frames of the grandfathering Clause not as a crypto asset service provider that has already been uh clarified by the commission um but as a like vast or whatever the name is locally um and provide services within that member state but a lot of national competent authorities actually say we have we are facing a lot of uncertainty around the crypto asset service provider registration so we are holding any uh future and current registrations under our um for example AML fra framework so that we are certain that whatever is going to come in the next months would be M compliant and Casp and not just registered under um whatever is currently applicable Cyprus is a is is such a case uh from a few days ago and now other National competent authorities are also evaluating this and now this brings me to the question to Diana because I know that you are um currently in the process of getting authorizations uh that are M compliant authorizations broadly speaking so if you can share more about your experience how it's is is it like for you especially if you can share experience from different member states that would be uh interesting sure thank you so much Vera first of all I would like to thank the organizers of this conference Vlad Tina and albena for organizing this conference in sofhia because we don't have many events of this kind in Sophia definitely and also special thanks to Via for organizing a regulatory panel on this uh conference because most of the crypto conferences I go to they usually focus on very technical aspects of crypto and very few people actually speak about regulation and compliance which I think is very crucial for the whole crypto industry uh I've been presented as a ex regulator and ex uh UK Parliament advisor but I actually been cooking in crypto compliance in the last 5 years when I joined crypto.com as a very small exchange we started our compliance program back in 2019 when centralized crypto exchanges were not even under obligation to do any IML kyc checks so it was Wild Wild West if you remember back in 2019 but what we chose to do at crypto.com is actually to start introducing compliance program early on because we had a long-term plans to develop to sustain our business and it was we basically build it into our DNA from the very early stages and it paid off because crypto.

com is probably now the most licensed and regulated crypto Exchange in the world it's got the best crypto compliance program IML program data privacy program cyber security program so I spent around three years building this program at crypto.com then I moved to another exchange called bitg get which is very famous for being an ambassador of Lionel Messi if there are football funds out here so I built for them compliance program and right now I work for software development company because I decided to change the course a little bit and I work for Alliance blog Foundation Alliance blog Foundation actually have few companies within this ecosystem one of it is software development company which was called nexera ID we develop a software product for compliance officers and what really caught my eye when I was joining you know coming from centralized crypto exchange to software development company something we struggle as compliance officers we use a lot of different tools like we have at least five six different softwares we have to use in our day-to-day job from kyc software IML screening software then you have transaction monitoring onchain offchain you have suspicious activity reporting and it's really hard to bring this information all together so we as compliance officer do a lot of manual work so when nexer ID approached me and they show me their product I was actually quite impressed because what they do they combine and aggregate all those tools all in one place for you in one nice beautiful dashboard with beautiful insights and statistics about your customers so I join to help develop the best product on the market I work with them right now but I also work with other companies within Alliance block Foundation to help them apply for licenses because we have uh companies who are in in real world asset oranization we have self custodian wallets and also going back to crypto.com uh when we were applying for licenses across the world and we probably got vasp registration every single EU member State like Jonathan just mentioned vasp registration in is nothing like a real license so it's very easy to get in some jurisdictions but in other jurisdiction they made it like in a full scale license I remember when we had to apply in UK FCA for a vasp registration just felt like a real license you had to wait for for one year I compared it now we applied recently for vasp registration or sometimes they called IML registration as well in Bulgaria it took us one and a half week to get vasp registration here with the national Revenue Agency so there's a huge variation in this IML registration across Europe I also applied in Poland I remember it took us about a month so yeah definitely so from one Year to one and a half week you see big huge variation and how different National competent authorities introduce those fast registration so I'm looking forward to seeing how it will develop with ma as well you know some I I know because we already start preparation I'm helping three companies to apply for M license so we're preparing a license in PAC and I know so one company is in France another company is in Netherland supplying and one company in Bulgaria so and I see the within those three different companies I see huge variation with within those jurisdictions so in Netherlands uh the national competent Authority the IMF opened the uh application window uh ifm IMF IM is in France but ifm ifm in in Netherlands so they open application window back in 22nd of April so you can apply basically for M license since 22nd of April if you're ready in Bulgaria we don't have application window open yet so we don't know when it's going to be open how it's going to be open what the requirements will be in France they had something called dasp regime which was very close to Mika so basically if you have a dasp license you can easily switch to M so again there are variations how you approach M license in a different jurisdiction but I wanted also to focus because there's a lot of things been said theoretically about ma pros and cons is ma good is ma bad as a ex regulator I always welcome good regulation and we know why do we need regulation we see in Industry Regulators as a bad guys right they come they find us they introduce rules we have to comply we have to spend lots of money on compliance we have to hire expensive Chief compliance officers but actually if you think about regulation why do we need it Regulators the main objective of every regulator is to protect consumers and who are the consumers consumer is me consumer is you V everybody in this room is consumer so their own the main objective is to protect us from consumer harm so we don't have companies like one one coin coming and taking all our money all our life savings and running away and disappearing to Nowhere you don't want to fly airplane if there are no Airline regulation and I think a guy from binance y the director of binance France actually brought this very nice example he said if we didn't have Airline regulation I wouldn't feel safe to go in the airplane because I don't think there is safe to fly if there is no drugs regulation we don't know if it's use safe to use the drugs the same in financial services we need regulations to know that we operate in a safe Market we don't want our bank to come and take all our money from our bank account so coming back to m in terms of more practical advice I would say you know companies who are applying to M uh it's very serious regulation you have to be very well prepared you have to put your house in order it's not only your IML compliance program there's much more to that and what I see companies are struggling with is business plan you have to prepare a very good business plan you need to understand what what are these products and services you're offering and very often companies can't even describe it in their business plan clearly if they can't describe it how does the regulator supposed to know what is that that you're offering so clearly written business plan all your policies and procedures in place and I'm not only speaking here about anti-money laundering policies conflict of interest there are also data privacy issues that regulator is looking quite closely in are you compliant with gdpr are is your cyber security in order you know are you able to protect your consumers from hacks and all other cyber security threats so all of this needs to be taken into account uh it's not scary Regulators are not scary they're there to help and I've seen it quite often in the case you know where companies said no no we're not going to contact regulator because we'll be on their radar they're there actually investing a lot of money even to introduce one regulation like ma they have to spend huge amount of resources it's a cross- departmental effort to introduce this kind of Regulation so they're there to protect us they're good guys they're not bad guys so if you have of course any questions in terms of practical how do you apply to MAA how do you approach different Regulators even vasp registration will be happy to answer after this panel yeah thank you yeah yeah so um is oh go for it just to add however that let's not kid ourselves the main scope of mea was to stifle stable coins or the explosion of stable coins rather it was never about consumer protection I can tell you that it was about actually making sure that the Libra project did not take roote in the EU and even like members of the European Parliament the European commission say this as well so that was the first and main reason why mik was created I think consumer protection came as a bit of an after thought to sprinkle some I would say stuff on the cake to make it look good but always good to be able to add arguments to a decision yes can I just go for you also have go for it okay yeah uh I heard a really nice thought from Peter Kon who is Ted as the father of mik he said like M is for the dedicated not for the curious I don't know if you have and this would be my uh last addition before turning into the scripted uh conversation but the story of mik basically what Jonathan also touched upon was Libra like then Facebook um before meta um after deciding to create their own stable coin they gathered they created the foundation and they decided to go to the EU and present this project and so they went on on a few meetings went to the commission went to the Parliament and basically said yeah listen the the financial system in Europe is completely messed up so we're here with this project of ours to fix it so basically the reaction then was yeah we need to regulate this right away so that's indeed the Genesis of the regulation they were not wrong system system is a mess so I mean they were not wrong with they said that but that's absolutely true but they can also talk to the UCI for like maybe working on the on the message um but with that being said I want to go back to uh the broader picture we already talked about um the EU we touched upon the EU but what I want to kind of bring you uh in the in the in the conversation by asking you to share a bit more of your experience from the US perspective particularly when it comes to litigation uh towards like written legislation and all those little differences that the US has uh when compared to the EU so yeah oh yes sure uh as always like a quick disclaimer I'm not a US lawyer and I'm not your lawyer so uh anything I say is uh for informational purposes here uh the US has a very let's say a bit of a different approach uh many in the crypto industry say it's like regulation by enforcement and this is to an extent very much true it is regulation by enforcement uh the thing is like I think it was said like recently by one of the high judges there that um actually this area of of law is going to remain a judg made law it's not going to get a legislative Bill uh that is going to sort it out and I'm going to touch upon this a bit later but there is a legislative bill right now that is being in the process it's called fit 21 uh but yeah right now this uh this whole thing situation in the US is kind of a judg made law so it's based on precedent and different cases with sometimes different results which are at some point going to be unified by the highest court uh the thing is the regulator that I mean the whole environment there is a bit hostile uh with the current Administration which might change in the future because we have seen some signals for that Trump for example says he's very Pro crypto-friendly and uh also uh uh yeah generally we are expecting some changes like whoever wins the elections most most probably the the current head of the Securities and Exchange Commission is going to be changed so there is going to be a bit of a change in in in policy and how the US approaches kind of this matter and maybe there is going to be a change in whether they are going to continue going after uh projects and and protocols for just lack of proper registration because there is a line there like there are more serious offenses like if you do like a fraud or or something really terrible and there is also like uh if you just didn't register which as far as I know is very difficult to the point of probably impossible to do but yeah in any case it's uh it's uh uh maybe there is going to be a slight shift and maybe some projects are not going to be pursued for like let's say minor administrative offenses or that's that's that's what most of the crypto projects hope for uh in terms of the current situation very hostile very aggressive uh I heard 50% of the judges in the US think that crypto is a scam a total scam so imagine just being dragged into a US court and like you have 50% of a judge that is going to hate you it's it's terrible like you don't want to get into that situation so uh um yeah the the the authorities there like cftc and SEC are quite active especially the SEC I think they have like maybe 200 Active cases um even though things are slowing down right now because of a few things first the elections they don't want to be too active before the elections uh and also because of the financial year like it ended in September for the SEC for example so they closed whatever they can and settled so they can get the money and bonuses and now they are going to be slowing down a bit from what I've heard like of course I'm I'm um not the US lawyer as I said uh and uh yeah so uh they are trying to throw in arguments uh uh and trying to see like what is going to stick one of the theories that they were trying to throw out is that all tokens are kind of Securities and uh now they had to actually apologize in a footnote in one of the court cases because actually um they said that yes we're sorry for the confusion we created it's not exactly that tokens are security it's that those tokens are offered as an investment contract and therefore they are actually a security so and this is like how they actually prosecute and try to go after projects it's always based almost always is based on the so-called how we test uh which is an old precedent that established the definition of a of an investment contract and um most of the tokens if uh they hire a chief marketing officer they're probably taking all of the boxes already to be an investment contract in a nutshell uh yeah there are some changes it's really interesting like uh I think and even after if they approve this new law fit 21 thing is like for the foreseeable future it's going to continue to be on a case-by Case basis and this is also good and also bad like this means that you at least have a chance to stand on if you get a good lawyer and also if you are doing things somewhat properly you have a chance actually to win your own case and uh with with the future I think the fit 21 once it's uh approved there was a lot of Hope there I wouldn't be too hopeful it's going to sort out a few things it's going to probably make one of the main Regulators the cftc and cftc is friendlier than the SEC so this is going to be a change and also they try to they say that fit21 is like mik regulation in a way and also they say that there is like some sort of a threshold for decentralization like if no one for example holds more than 20% of the tokens they say the project is decentralized so uh it's definitely a step into the right direction of of getting some clarity and not relying on like court cases for for for enforcement and just yeah which is which creates a patchwork and it creates unpredictable results which is of course as everyone says not good for the economy projects are going outside but yeah if they come to Europe we would be happy because there is going to be more work for European lawyers yes thank you for uh bringing also defi into the picture and into the discussion because that's definitely something that I want to focus on for the at least a big part of the remaining time in this panel so uh s I'm going to now um point the Limelight towards you uh by uh going back to Mika and going back to something important which is uh that mik currently in its somewhat Infamous RTO 22 um excludes from its scope decentralized projects however no one is really sure what that means in practice so stin I know that you have analyzed uh what recently came out uh from the Danish Authority when it comes to evaluating the centralization under maika and basically if you can share some practical examples of how that would look like then we can open the discussion around defi also for the the rest of the panel all right well uh the single recital of ma that addresses decentralization uh Jonathan correct me if I'm wrong this is recital 22 yeah uh it says basically that the regulation should not apply to project that is sufficiently decentralized well when I first came across uh with this provision I search for extra content similar to other people in the space but didn't uh didn't find anything anything else more than that so the Safe Harbor that the projects in particularly defi space should rely on is encapsulated in a single recital clearly this is not sufficient and here comes the Danish Financial Authority examination and uh briefing that they published earlier this year they intend to explore the matter further uh and uh make uh some presentation to the public around their thought process how they intend to evaluate the centralization of course nothing in this paper is set in stone nothing is established as clear framework that uh uh companies uh established in uh Denmark or other member State uh based projects should ad her to but uh it helps us a lot to follow the direction and uh see how the competent authorities would tackle this topic uh one of the core components uh is uh the lack of well for them to assess decentralization they introduce uh the the first uh necessary item lack of any sort of concentrated control over the project or the protocol further on they uh examine the technical decentralization and the governance decentralization in my view the uh assessment the assessment of technical decentralization uh can be more clearly handled at this point at least they signal that they expect the smart contract to set of smart contracts of course we know that uh there are group of contracts that operate behind any of uh the native defi protocols so they expect these contracts to be uh autonomous to be self-executing uh they would look into the contract architecture and they would examine if there are any embedded rights into these contracts for instance if uh there is a payment stream directing to any of the core contributors that can be appointed as uh potential uh centralization Vector I would say as for uh decentralization assessment u i view here uh a decent overlap with MAA classification of tokens because the Danish Authority would examine uh not only the the token type by its uh definition by the protocol uh they would uh look into its uh particular design and uh they would assess if there are any uh any rights Beyond uh giving more power to the to token holder uh beyond the the voting capacity for instance uh if uh the the token gives uh the token holder a right to claim future profit out of the protocol uh another uh vectors that uh deserves our our attention uh are how the uh voting process is organized what voting systems are used uh whether there is delegation of voting power that can also establish the the precedent of concentration of uh this uh power within the hands of you uh basically the regulator cares about the these scenarios where uh many um entities no matter IND uh individual persons or legal entities May accumulate voting power in in different ways and this dictate the development of the protocol of course if they uh I mean if the uh competent Authority comes to such a resolution uh the claim of the project that they are decentralized by Design might not be sufficient then uh theoretically speaking of course the regulator May enforce uh some actions uh against this project for not being in compliance with M these are expectations based on this uh circular brief published by The Authority I can get to the more practical examination later but I can now leave the floor to other attendants to discuss this any comments already on on the Danish paper and basically because something that I don't think you touched upon was the front ends um question so I know Jonathan that maybe there is a thought about that um the Danish FSA paper did make some valid points and some perhaps incorrect points as well so briefly there were some I would say important points such as if a smart contract logic is upgradable therefore the smart contract is is is not renounced then whoever holds the admin keys and can potentially change the logic of the smart contract could potentially be within scope of MAA if of course there is a provision of crypto Asset Services and the definition of a CP is met um um however when it came to let's say their interpretation of online interfaces where they somehow seemed to hint at the fact or at least their interpretation of the fact that most online interfaces most front ends of defi rather would be within scope there I would strongly disagree and the reason for that is because the definition of an online interface is quite clear it has to be first of all operated by a Casp or by an offeror or on behalf of an offeror or a Casp but and this is the important part now the front end must serve to either give access to Holders to their crypto assets or otherwise give access to crypto Asset Services now most frontends in defi do not serve to give access to Holders to their crypto assets the crypto assets are are stored on the blockchain and if anything you access them through your private key not through a front end so that already excludes quite a lot of I would say D5 front ends out there secondly as well in order for a front end to give access to crypto Asset Services there must be a CP in the first place offering those crypto Asset Services and most D5 protocols or rather let me just reword that some of the major D5 Protocols are not casps we're just talking about a protocol a set of smart contracts you can choose to access them directly or through a graphical user interface being the front end itself that's all there is to it nothing more nothing less so on that particular point I did strongly disagree with the interpretation of the Danish FSA uh because I think it was too wide and really and truly in my opinion not based on the letter of the law which again as I said is quite clear in that it has to actually serve as a Gateway for users to access their crypto assets rather than just any graphical user interface great any other thoughts on that interpretation and maybe you can then give the Practical example as well uh in fact they leave the door open uh to more broader interpretation saying that the company that uh is uh offering this Gateway may not be uh classified as L sensible entity if uh it's not in direct control of smart set of smart contracts however how this will be applied uh in in Practical terms it remains to be seen what we at Laris that uh is examining uh curve protocol and curve governance as per these criterian the current criterian set by the FSA and uh we issued a recommendation of course we we don't act as uh any um solicitor or legal advisor to to curve we independent risk organization and uh we we conduct our um we conduct the research on our own and issue independent opinion uh however we advised the da uh for the conventional way of uh creating additional entries to the protocol perhaps developing extra interfaces is uh would would be B beneficial here uh but uh also disclosing alternative routs for accessing protocol uh is seen as uh reliable mitigation measure against future regulatory actions in the case uh with uh curve I assume with other uh major D5 protocols it is also achievable uh both uh deck smart contracts or Landing smart contracts the the governance modules they can be accessed either directly via ether scan via command line interface or via other uh protocols uh governance aggregators other venues that can give you access to the underlying smart contracts if the project is uh not capable of uh developing many different uh front ends and incentivizing them that uh well of course can be interpreted negatively by the regulator um there are other avenues to interact with protocol in a relatively safe manner that is the uh current Uh current state of U uh development as per the uh The dfsa Advisory we we cannot know what will happen by the end of the year when um uh even more rigorous approach is expected by the European agencies I think just having one U um let's say online interface um to access an underlying protocol could be potentially an issue as you are saying saying because if there's only one easy means of accessing by easy I mean that any person can just again access the interface in order to then access the underlying protocol then that might be seen as let's say a single point of entry if you will which depending on what the underlying protocol is about right because if let's say the underlying protocol is uh let's say essentially non-custodial in the sense that you're not actually depositing your crypto assets into a smart contract might be controlled by someone else then in that case if uh let's say it's uh just being let's say served through one online interface then uh there might be some uh room for worry but again it's not just about I would say the online interface itself it's always also about what does it give you access to as in like what can you access through the online interface as well but I agree that if there's more online interfaces to access the underlying protocol then yes that would definitely be um a point of benefit I would say again with uh sorry for cutting with the multiple interfaces uh all the uh project developers should be mindful of how they incentivize building this interfaces cuz uh if the core team just uh launch uh five different entry points and still controls them I don't see much of credible decentralization here there should be a clear business model I I would imagine for any any independent uh entry point um in order to to have the valid claim that uh these user interfaces are not connected with each other what you wanted to say something yeah very quickly actually as Jonathan was saying like it depends on the underlying service but imagine if you are swapping tokens and you're charging a fee and in the background you're just using like Unis swap integration or something like this uh in this case you become a Casp yourself in a way so it's uh you're reselling another regulated service and you become a regulated entity yourself so it really depends again on what service you are reselling but also some of the dii interfaces in addition to the underlying service not being regulated what they do is like the interfaces not charging any fees and there is a business test under maik so if you're not charging any fees it's difficult to argue like that you're doing it as a business unless it's a sham and Regulatory Arbitrage created by the founders but that's a different story and the other one is actually that some of those interfaces they actually just write a message for you to push on the network so they just prepare like the code instead of you typing in the common prompt whatever uh so they are in a way you can argue that they're just what they do is they draft a message they help you with like technical knowledge and and language something that you kind of lack as it skills as a as a as a Layman user so in that way like I would tend to think that those interfaces generally shouldn't should be outside of the scope and also in terms of like compliance like we were entertaining a few ideas honestly some of them was like um creating a local client that you download to interact with the protocol so it's not software as a service that you get but you get your own like software licensed copy that you install on your computer and you interact with the prot Co and uh also we yeah there I I know some of them were discussing also putting like interface on ipfs not sure how much good it's going to do but it's a probably a step in the right direction and the other one I heard actually about a protocol that allowed some of the interface like you open source the interface and they can everyone can replicate it and put their own fee like a small margin and that's a way to incentivize this kind of decentralization but I think with the Danish guidance I'm not sure it's going to be a viable route because like maybe you can pitch in and have a different opinion uh self-controlled uh user uh tool link user interface interface if you like uh is actually greenlighted by the the current version of the FSA uh however uh this is uh an interpretation of a particular competent Authority in a particular member State uh we are not certain how it will be considered in a broader uh super National level and uh therefore uh at least uh my expectations I I wouldn't say they are huge uh but uh I'm cautious of what uh the competent authorities on the supernational level will drop by the end of the year because it can significantly change the direction and uh limit the uh playing field of many protocols yes thank you for this and I believe the audience might already have some questions so if you do have questions there are microphones uh so please go there and uh ask it and just before that S I will thank you for um for this clarification that basically we will see some expansion in the understanding of what defi probably is um provided by the European Commission because in the text of mik itself there are already Provisions that are saying okay let's uh the commission will um basically work on the so-called Mika 2 that would um also put into the scope uh decentralized um products and decentralized uh decentralization in in general uh but we are not sure what that means the commission is not sure what that means so currently if you read M you'll see that there is a deadline that they need to come out with this report and the deadline is this year and this would be fed by by um other documents and reports by the European Securities markets Authority and the European banking Authority so those authorities already work on that but the commission would very likely delay the publication of this final report uh there already if you are following Twitter uh there was this um popular tweet uh for like two two hours or something uh saying yeah that that report would probably come out in March because this is not a priority of the commission but honestly we don't know that uh because we don't know what the priorities of the commission are because we don't even know what the commission is currently we don't have the Commissioners um set in place so that would also play a significant role um but yeah this will come eventually the latest let's say for now at least the latest information is March and it would bring more clarity around interpretation on EU level what the centralization is and what might be and this might lead to some changes in Mika and so forth uh but for now we are left with the interpretations on member state level because that's going to be the entity that is going to evaluate whether or not you need a license at the end of the day so I don't think we have any questions oh please go to the microphones come [Laughter] on it will I think they will turn it yeah turn on Okay uh Valentina uh I I have a question very practical one uh there are many exchanges which are operating outside uh the EU in America or somewhere on islands and they have their infrastructure developed for years and years like really huge infrastructure apparently they have some clients in the EU and so far they are and if presumably they don't have vasp license as of now in you and they kind of operating in gray area and and for the future when MAA will be applicable what are the options for those huge exchanges like assumably they even want to enter this market and be compliant with mic and all other regulations uh how with having all that uh infrastructure set outside the EU what are their options how they can start operating with mica and everything and be compliant are they supposed to split their infrastructure or they can somehow to bring are the existing infrastructure in compliance with EU I can answer that question yeah as as a centralized exchange person uh so they always operated cross border especially the top tier exchanges they always operated cross border so when I work for crypto.com theyve been Hong Kong exchange operating across Europe uh I think uh it's uh the question how some Regulators interpreted because you know there was this question as a exchange based in Hong Kong do I advertise my services to clients in EU and some Regulators went and after some exchanges they were fined you know for actually offering Services we have at some point to offboard our Dutch clients because Dutch Central Bank came to us that you're offering your services illegally here on this territory and we had the same issues with bidget bidget is a Asian based exchange providing services so the argument the exchanges were using they were saying it's reverse solicitation basis and there is a paper I think especially that comes with Ma on reverse solicitation to make sure it's kind of um clarified what exactly reverse solicitation uh when we had to argue with some Regulators that we are serving those clients in EU based on reverse solicitation basis it was really hard to prove because our marketing department was advertising quite heavily in those jurisdictions the app was in the local language uh the website was in the local language so the regulator would come to us said you're clearly providing services in our territory so you fine 4 million euros right so I don't know how it's going to be with ma now coming I think majority of top tier exchanges they already have European offices they already thought about how they're going to apply for MAA and uh you know basically the European office is going to apply for M and they're going to use their M license to provide services in EU territory maybe there are some other exchanges smaller ones that purely operate outside of Europe I'm not sure what's going to happen with those if they want to operate in Europe they probably need to establish an office in one of the EU member states I don't know if you guys have anything to add no I agree um and also the reverse solicitation exemption I think as M also said in one of its consultation papers on the reverse station um Clause that it's more of a Prohibition and that it's only going to be let's say availed of in terms of again who is actually allowed to operate under article 66 if I'm not mistaken um in a very restrictive manner so in fact Testament to this as well there's also the Asma opinion which was uh recently issued on dealer broker arrangements as well where there were a lot of uh prospective CPS which were going to apply for a broker license um under MAA and then route their orders to their um exchange entity which is outside of the EU and esma rightly or wrongly said that such kind of error Arrangements will not be allowed under MAA um so this all goes to show that the intention of the legislator is really and truly to let's say not allow any provision of crypto asset service what whatsoever targeting EU residents um unless it's really and truly and objectively proven that EU residents are actively seeking the services of exchanges outside the EU which have no efforts whatsoever in in targeting the EU so I think that's pretty much clear from the legislator's perspective so we only have five more minutes and I see two questions right two people wanting to ask questions can you ask them uh right one after the other yeah just ask all questions together um like I have a question then they will uh the panel will I have a question for Diana so what's the the penalty for non Mika compliance do you have like a uh fines is it gel times have they Define that so we have a sort of precedent what happens if you don't comply uh I couldn't hear the question so you're saying what will be the consequences of non compliance with M right yes correct yeah okay so I think it's like non-compliance with any kind of other regulations right there'll be a very strict supervision of implementation of ma requirements for every crypto exchange or any crypto company and if it's not uh in compliance there'll be you know the every regulator have a supervision department so they'll be supervising how those m requirements are implemented and if they don't like something they'll warn The Regulators usually first warn you they don't find you straight away they issue around free warnings if you still don't comply they pass you to enforcement department and this is where the enforcement comes in and we expect some finds you know we already seen some Bad actors D being driven out of the market from EU so yeah definitely they they're going to be fines if they don't comply I'm telling you this as ex regulator and US Regulators are usually quite strict especially those in Western Europe uh it might be different you know because different Regulators are different right I don't know how enforceable things are in uh in Bulgaria I don't know how strong is the enforcement department of the Bulgarian Regulators I've never heard actually Bulgarian Regulators put in huge fine of being somewhere in the on the news I don't know guys you might correct me under gdpr there are some okay they were very minor fines for IML Bridges when they're the vas regime like I think for other companies not crypto but you can you know get the I think it was like €250 or something like very minor fines this could be an attractive point to get a license in Bulgaria because the fines are going to be lower than some other jurisdictions yeah I actually heard from some companies and they approached me and they said we operate in France but can we apply for ma license in Bulgaria yeah you can you can passport so yep uh you you can passport once you get a license but right now they want to apply for M license and I'm telling them look the regulator is going to examine you they'll examine where your operations are where is your office where are all your people are sitting and if they're all in France they'll ask a question why you applying what's your reason for applying for M license in Bulgaria then go and apply for one in France so I'm kind of advising companies not to do it unless they actually open an office in Bulgaria and move some people they need substance and at least like a chief compliance officer and what not but yeah by the way tax is also good here you can easily staff uh competent professional people especially in compliance manager yeah absolutely one more question unfortunately the other ones would have to wait for the break we'll have you have all of us around uh so yeah yeah go for it hi it's Elena um thank you this has been a great session first of all I wanted to say and it's taught me quite a few things um one thing that I'm I've been thinking a lot about is to what extent do these ma requirements impact institutional businesses right because for example a crypto exchange tends to be retail focused you've got retail customers a lot of these ma obligations that apply to casps um are really kind of aimed at retail if you an institution that wants to operate cross border but you are purely institutional what does that look like in terms of compliance versus for example a big retail focused crypto exchange who wants to take this go for it U yeah I think you still need to like if you are doing a CP service you still need to to comply in a way like of course if you are dealing with consumers you also need to comply with like Consumer Protection Law there is a lot of personal data floating around so it's heightened but uh generally I think if you doing a CP service even if it is on an Institutional level you would need a license and otherwise if you are trading with your own funds you actually are probably not doing a service on behalf of a third party so maybe you don't need a license but yeah Jonathan can probably pitch in here no um just want to mention as well that when talking about institutions um financial institutions and credit institutions enjoy certain uh let's call them exemptions from M and the sense that credit institutions can offer all crypto Asset Services without requiring a m license um and financial institutions depending on the servic they are offering they can offer that equivalent Service as a crypto asset service um without requiring um a license under Ma so this does give them um some degree of flexibility in terms of entering the crypto asset Market um but essentially like Vlad said there isn't really that much of a distinction between retail um clients and institutional clients under meup broadly speaking so uh essentially it's it's not going to be let's say something that they have to cater for in a specific way if they're going to be mostly targeting institutional clients thank you so we will be around for all the other questions and as we are out of time unfortunately I just wanted to end on a bit of a positive note so each one of you please share what you are excited about for the like the future trends it might not be regulatory Trends necessarily um but we're lawyer so it probably would be um just one sentence what are you excited about like in what's coming in the next months and year we can stay we can start with di I'm excited about this new emerging products like defi the conization of real world assets it's a new product still unregulated so I'm looking forward to see how it's going to develop in the next 5 years perfect S I have two very very quick we are lawyers so it's never one thing one thing is uh the uh the rapid intertwining between B5 and thread F at least in my bubble and the other thing that uh it's more like uh a wish rather than excitement but I would really appreciate uh Regulators to focus more on AI and other trendy stuff and uh leave M 2.0 alone for the next 5 years hopefully what I think yeah I'm excited about institutional adoption getting into the market and uh generally like blockchain becoming more and more mainstream to an extent so yeah that's something I I I think I look forward to Jonathan your the US elections because it seems like everyone is waiting for them before deciding what to do in the market so I'm just waiting for those thank you all thank you for this great discussion you can find us we'll be around um so yeah I want to take the thank all the panelists and the organizers for giving us a whole hour we sure needed that [Music]