CryptoUK Blog – Policy Readout: Thai SEC Public Conference
24 June 2023
Introduction
CryptoUK was invited to attend and speak at the Thailand Securities & Exchange Commission (SEC) Public Conference titled “Envisioning the next horizon: A way towards a connected future of capital markets” on 16 June 2023. This one-day conference succeeded the three-day annual International Organisation of Securities Commission (IOSCO) meeting, hosted this year by the Thai SEC.
This was a valuable opportunity for CryptoUK, the UK trade association representing over 160 crypto firms, to meet and debate many aspects of crypto policy and regulatory considerations impacting the industry with senior policymakers and regulators from across the globe.
CryptoUK Participation
The programme consisted of a number of keynotes from the Thai government, the SEC and the IOSCO leadership, complemented by three deep-dive panel discussions on emerging trends capital markets and the future of finance. CryptoUK had the privilege of participating in the “Digital assets and the proof of responsibility” panel alongside the CEO of the Hong Kong SEC. The panel was led and moderated by CFTC Commissioner Kristin Johnson.
The debate was lively and centred on the 2022 failings within the crypto capital markets, and what is needed to ensure market integrity, transparency and retail consumers protection going forward.
Highlights from the discussion included:
- Events that led to liquidity crises or financial exigency at cryptocurrency firms during 2022 and how market participants or regulation could prevent or mitigate such incidents in the future. The panel agreed that the bad acts of a few do not represent the entire industry and that regulation will go a long way to prevent future episodes. CryptoUK highlighted that it is important to ensure that an overreaction by regulators and governments does not hinder good actors providing compliant products and services.
- Discussion about how some digital assets are not completely new financial products, but rather an innovative form of pre-existing financial products or market structures. Therefore, relying on the principle of ‘same risk, same activity, same rules’ principle to identify and adapt best practices from traditional finance should be prioritised and applied in the crypto market ecosystem. CryptoUK cautioned that certain activities, (for example, staking on a layer 1 blockchain), are not akin to a collective investment scheme and should have a bespoke set of rules.
- Discussion around the opportunities and potential benefits blockchain technology can, and is bringing today. CryptoUK highlighted financial services use cases such as the improved access and efficiency potential from digitally native assets, new payments architectures that enhance cross-border payments and remittances (sharing recent humanitarian aid examples), and the evolution in financial market infrastructure, such as faster settlement, automation and reduced overheads. Furthermore, CryptoUK emphasised how non-financial Web3 applications such as those focused on governance, gaming, collectables and community building, are improving transparency and efficiencies in other industries such as supply chain management and recording carbon credits and providence on-chain using shared ledgers.
CryptoUK engaged in a number of substantial and productive bilateral discussions with conference participants including; the Securities and Future Commission Hong Kong, Commodity Futures Trading Commission (CFTC), European Securities and Markets Authority (ESMA) and The International Organisation of Securities Commissions (IOSCO).
Conclusions
Following the IOSCO members’ private meeting it was clear that many of the traditional finance operators were in agreement that much of the activity taking place in crypto trading is analogous to conducting financial services and therefore should be regulated in the same way.
We hear across the regulatory community that if the same risks apply, with the same activity, therefore the same regulatory outcome, should be sought. CryptoUK challenged this broad approach and some of IOSCO’s recommendations. For example, in so far as using a common example of financial market infrastructure (FMI) noting IOSCO’s Recommendation 2 – “Organisational governance: Regulators should require CASPs to have effective governance and organisational arrangements, commensurate to their activities to address conflicts of interest, specifically those arising from vertically-integrated business models”.
FTX was a clear example of absence of organisational governance; however, we reminded our global standard setting bodies and competent authorities that the technology does, and is changing our long held market infrastructure models.
CryptoUK noted that the Thailand Finance Minister’s comments focused significantly on retail adoption, citing that over 40% of their 72 million adults hold some form of crypto for investments purposes (comparing this to UK where 10% hold crypto as an investment and circa 20% in the US), and that policy makers do understand the adoption and high usage in their regions can be a positive step toward financial inclusion and digital literacy, given adequate consumer protections and market integrity measures are in place.
In summary, it is important to note that the use cases for this technology are wide ranging investment asset (retail and institutional), payments, financial market infrastructure and a host of non -financial services (creative arts, fashion, retail, healthcare and a multitude of web 3 applications including social media, gaming and community engagement) so protecting consumer harms and the integrity of markets needs a delicate balance of the right regulation, not same regulation, in what is a shift to a new paradigm of looking at how we should ensure best risk mitigation.
