Poorly managed companies and scammers of all stripes are not deterred by the lack of regulation. (Photo: 123RF)
LES KEYS DE LA CRYPTO is a section that patiently decodes the world of cryptocurrencies and its stock market, industrial and media turmoil. François Remy’s mission is to identify promising entrepreneurs, decode technical progress and anticipate the industrial and social impacts of this digital currency.
(Illustration: Camille Charbonneau)
Regulators, lawmakers and business owners are missing out on a rare opportunity to together revolutionize financial sector security. Instead of criminalizing crypto technologies, market gatekeepers and policy makers could use them to fight money laundering and scams with players in the bitcoin ecosystem.
“Several large financial institutions are now just waiting for regulatory clarity before diving into cryptocurrencies.” This statement is not yet another promise, launched out of the blue by a crypto evangelist, on the hoped-for influence of the technologies revealed by bitcoin. This is the testimony of Paul Brody, global director of blockchain innovation at Ernst & Young (EY). The electronics industry veteran leads blockchain strategies, initiatives and investments for the UK’s leading consultancy firm.
The idea here is not to succumb to any argument from authority or a self-fulfilling prophecy from a concerned consultant, but to take the testimony of an industry player. He who accompanies multinationals in their digital transformations. However, his testimony comes out full of frustration: “no lessons will be learned (from the fraudulent failure) of FTX,” he believes, while the crypto ecosystem and its emerging technologies hide advantages that we are slow to identify and exploit.
Lack of overall consistency
Paul Brody says he doesn’t understand “our slow progress around the world on well-organized blockchains and cryptocurrency regulations.” He defends the virtues of a legal framework and underlines the positive impact that some measures can have against “bad actors”.
But the head of EY cites “the deterrent effect on good actors who would like to undertake this activity” generated by the lack of uniformity and standardization at an international level. “These good actors are afraid they’re on the wrong side of rules that haven’t been set yet,” he says.
Paul Brody insists that he is not a fortune teller, but shares the sentiments of his clients, including the big names in finance who are awaiting clarification in regulatory terms before launching more generally into the sector of bitcoin, stablecoins and other digital assets.
“A far from ideal situation”
The current environment looks like a double jeopardy for the cryptocurrency industry. Paul Brody points out that poorly managed companies and scammers of all stripes are not discouraged by a lack of regulation (quite the contrary!). As a result, bad actors face much less competition. And even if there are many “good guys” working in the crypto ecosystem, it remains difficult to distinguish the wheat from the chaff, especially for end users who are necessarily initiated.
“Due to lack of clarity and regulatory standards, even these good players have a hard time differentiating themselves from bad players. All bad actors say they are vetted, professionally handled and take compliance seriously,” says EY blockchain director.
A regulatory revolution
To step back with this testimony, aren’t we all – regulators, policy makers, entrepreneurs and consumers – missing out on rare opportunities? Why not take advantage of the advances offered by these new technological tools? Why not leverage this inherent transparency of public blockchains to improve our systems?
Since the days of Bitcoin, it has never been so radically possible to follow financial flows. In other words, the technique makes it possible to trace, document, analyze and identify the risks posed by transactions. The fight against money laundering appears to have a lot to gain from integrating this technique into its means of control.
The regulatory framework could embrace these developments to improve the safety of the financial sector, but also, potentially, create new business and even social opportunities. Efficiency gains, administrative simplification and decentralized automation enabled by technologies in the crypto sector against the increase of registers, the lengthening of procedures and the overdrive of the rules of our current public systems.
What if the announced industrial revolution of the web3, with blockchain and crypto technologies, could only take place through a regulatory, political and civic revolution?