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Regulators call for careful approach to blockchain technology solutions

The Montreal Economic Institute recently released a [paper]( written by economist Mathieu Bédard PhD, The Underestimated Economic Benefits of the Internet: “It seems destined, in all likelihood, to be the primary driver of economic growth in the coming years, even though we still do not appreciate the full extent of its impact on the economy.”

The Montreal Economic Institute recently released a paper written by economist Mathieu Bédard PhD, The Underestimated Economic Benefits of the Internet: “It seems destined, in all likelihood, to be the primary driver of economic growth in the coming years, even though we still do not appreciate the full extent of its impact on the economy.”

Bédard explains that regulatory constraints could have adverse effects on the ecosystem, stifling innovation. Some of the internet’s most disruptive innovations have come from the emergence of a sharing economy, including Uber and Airbnb. This economy was the focus of a paper released by MaRs Solution Lab last Thursday, in partnership with the Government of Ontario and the city of Toronto

MaRs Solution Lab“The rising popularity of the sharing economy is not only disrupting existing markets, like transportation and accommodation, but it is also forcing governments to rethink regulation for these and other affected markets.”
— – MaRs Solution Lab

“Many strong opinions and solutions have been brought forward,” states the report. “But do we really know what’s going on? Regulation remains elusive as it is a complex problem without an easy solution.”

The blockchain industry has faced similar hurdles. The New York Department of Financial Services released the BitLicense in August 2015, after three drafts and years of development. The 44-page document was created in order to provide a framework for digital currency businesses to operate in the State of New York.

The first regulation of its kind was traumatic to the bitcoin community in New York. Several companies pulled the plug, or moved their operations to other more flexible jurisdictions. Only Circle, a peer-to-peer payments technology company utilizing bitcoin and traditional fiat currencies, has succeeded in receiving the license.

Late last week, the Financial Stability Board (FSB) discussed distributed ledger technology, and regulation on a global scale. The group reviewed major areas of financial technology innovation, including distributed ledger technology, and proposed a framework for categorising them and assessing any financial stability implications.

Financial Stability Board“Plenary members discussed the issues raised for public authorities by these technologies, possible steps to address potential risks, and opportunities for cooperation in the FSB and with the standard-setting bodies to deepen analysis and develop regulatory perspectives.”
— – Financial Stability Board

The board is an international body, established in 2009, that was in order to monitor and make recommendations about the global financial system. It’s a representation of the G-20 leaders’ first major international institutional innovation.

Established in 2009, the FSB is tasked with coordinating the work of national financial authorities and international standard setting bodies, and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

The group brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with 65 other jurisdictions through its six regional consultative groups.

The FSB has been described by Secretary of the US Treasury Tim Geithner as "in effect, a fourth pillar" of the architecture of global economic governance. It has been assigned a number of  tasks, and works alongside the IMF, World Bank, and World Trade Organization.

The FSB Chairman of the board is Mark Carney, who is also Governor of the Bank of England. In February this year, Carney sent a letter to G20 finance ministers outlining its focus for 2016. Among the five priorities summarised in the letter was FinTech innovation, including blockchain technology, the implications of which should be assessed.

Mark Carney“The regulatory framework must ensure that it is able to manage any systemic risks that may arise from technological change without stifling innovation.”
— – Mark Carney, FSB Chairman of the board & Governor of the Bank of England

Other regulatory bodies are also grappling with how to regulate blockchain technology without stymying innovation. In a recent Keynote Address at the SEC-Rock Center for Corporate Governance, Security and Exchange Commissioner Chair Mary Jo White outlined the need for open dialogue with Silicon Valley, in an effort to achieve effective regulation.

White stated that blockchain technology has the potential to modernize, simplify, or even potentially replace, current trading and clearing and settlement operations. “We are closely monitoring the proliferation of this technology and already addressing it in certain contexts.”

Mary Jo White“It is essential that the Commission fully engage with Silicon Valley, and participants in this important market across the country, so that we can better understand the unique features of its investors and financings.”
— – Mary Jo White, Security and Exchange Commission Chair

The Chair explained that staff recently reviewed the registration statement, of an unnamed company, seeking to offer and sell digital securities. This could be achieved by eliminating the need for intermediaries and allow for settlement on a nearly instantaneous basis. However, a key regulatory issue comes into play, whether blockchain applications should require registration under the existing Commission’s regulatory regime. “We are actively exploring these issues and their implications,” said White.

The SEC sought public comment on the use of blockchain technology in December last year, much like the process of developing the BitLicense. “The insight from the comment process will help us evaluate how to best regulate these new innovations, and we encourage comment from all constituents,” stated White.


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