As regulators around the globe take action on a growing digital currency marketplace, some key influencers warn that over-regulation could have negative effects.
In Canada, regulators like the CSA were early in their classification of some digital currencies as securities, and have since been working to positively regulate the industry and encourage the innovation and expansion of fintech firms.
Former CFTC chairman warns regulators could leave the US lagging
Jim Newsome, the former Commodity Futures Trading Commission (CFTC) chairman cautions U.S regulators to be careful in regulating, or risk leaving the U.S behind the rest of the world for digital currency innovation.
Since leaving the CFTC, Newsome has become an advisor to digital currency firms. His comments were made during the annual meeting of the Digital Chamber of Commerce, where he also criticized the stricter stance of current U.S Securities and Exchange Commission chairman Jay Clayton.
In the U.S the SEC views digital currencies as securities, thus needing tighter regulations. The CFTC takes the view they are commodities.
A report published by LabCFTC, a fintech initiative of the CFTC, said, “the CFTC looks beyond form and considers the actual substance and purpose of an activity when applying the federal commodities laws and CFTC regulations.”
NASDAQ Index Research and Product Development Head Dave Gedeon predicts the SEC is unlikely to authorize a cryptocurrency Exchange Traded Funded in 2018, despite Bitcoin-based ETF’s launching in 2017.
European Banking Authority call for “nuanced” approach
The head of a major banking watchdog has said that bringing fintech firms under the same supervisory umbrella as banks because they compete in some of the same sectors is not the right answer.
Andrea Enria, chairperson of the European Banking Authority (EBA), is “yet to be convinced”that digital currency should come under the full scope of regulation. He is calling for a more “nuanced” approach.
“An excessive extension of the regulatory perimeter, attracting most fintech firms under the scope of bank-like supervision just because they compete with banks in some market segment, is likely to be a sub-optimal solution,” said Enria.
He goes on to warn that it would constrain financial innovation for smaller firms who would struggle to manage the burden of compliance.
“Importantly, it would also risk lending credibility via regulation to firms that do not deserve it, legitimizing activities that could carry high risk and generating an expectation of public protection in case something goes wrong,” he continued.
Further, Enria is keen to see fintech firms properly monitored and governed and is set to produce an “EBA Roadmap” for regulation in coming weeks. The roadmap will ensure digital currency based services are regulated in a consistent way across the EU.
The EBA welcomes sandboxes, which would be comparable to the Canadian Securities Agency (CSA) Regulatory Sandbox, to help financial startups with innovation and compliance. The EBA will also create a fintech knowledge hub.
Regulation is good, but too much could constrain the industry
Proposed regulations from many countries are already being partly blamed for falling digital currency prices. While regulation is required to protect investors and other stakeholders, too much may stifle new innovations which could be worth billions to many countries.
Countries who over regulate could risk losing revenue generating fintech businesses to more open economies that actively encourage and support digital currency related activities.
Canada operates a number of initiatives like the CSA Sandbox and is forming links with regulators worldwide to encourage fintech firms to grow both at home and abroad. While the CSA is quick to identify and warn of potential risks to investors, they are doing this within a culture of support for digital currencies and blockchain technology.