Global Ripple Effects: How the shift in US policy and regulation is reshaping Digital Assets

Albert Isola:

First of all, I could just ask my great team here to introduce ourselves. Lisa, do you want to kick us off?

Dr. Lisa Cameron:

Yeah, sure. I’m Dr. Lisa Cameron. So didn’t start off in digital assets, as you know. Psychologist by trade, which was well needed when I was an MP in the House of Commons for 10 years. Moved into this sector through chairing of the All-Party Parliamentary Group in digital assets and cryptocurrency for a period of four years prior to the election last year. And since that time, I’ve been leading up the UK-US Crypto Alliance, and also the Global Legislators Forum, which brings together MPs to educate them on the sector.

Albert Isola:

Thank you very much. Wasim, would you like to?

Wasim Ahmad:

Hi, I’m Wasim Ahmad. I have a startup called Vault12. We’re the pioneers in crypto inheritance. As a small eight-person startup, I’ve been very, very involved in a lot of the regulations in the US Securities Clarity Act, the Token Taxonomy Act, the upcoming Market Structure Act. And later this week, I’m going to meet with the SEC to give them my views, or our views, on utility versus security, and all of the unintended consequences that come from having incomplete and unclear regulations. And then I’ve also been involved in UK regulations through CryptoUK.

Albert Isola:

Tom?

Tom Duff Gordon:

Hi, everyone. Great to be here. So I’m Tom Duff Gordon. I’m the VP of International Policy at Coinbase. So I look after all the relationships that we have with government and regulators outside of the US. I’ve been at Coinbase for three years, and prior to that I was in TradFi. I was at Credit Suisse for 15 years. Looking forward to the conversation.

Albert Isola:

Thanks very much. Well, as you can see, we’ve got a wonderful team who have direct experience of the US market. And I think before we come back home to the UK, I thought a good idea to kick off with the US.

Could you talk us through some, Wasim, if I can start with you, your personal experiences of the US? And by that I mean we know where we are today. It’s been a difficult ride these past years, and the speed of the first 100 days of the new administration, is it as good as it looks?

Wasim Ahmad:

I think it’s much, much better. I mean, the last four years have been terrible, just like an ice age, with the administration going out of their way to sort of persecute companies. So that is behind us.

There is an awful lot of activity going on behind the scenes, and maybe since we follow it minute by minute, it looks like there’s an awful lot, and maybe other people don’t necessarily see all of that. But there are several bills going through Congress. The bills are stacked up so that in the future a future administration can’t just revoke some law and then everything collapses. So they’re all stacked up. Market structure bill is overall stable. Coin bills come underneath, they’re covered in the market structure bill, but they’re separate bills. Security Clarity Act, which is all about securities and utilities, separate act, covered in the market structure bill, but a separate bill so that you can’t just revoke any of it. So that is all the stuff that’s going to go through Congress.

And the timeline for that is very, very quick. Those are the stablecoin bills are going through imminently. The first draft of the market structure bill, we’ll see this week. That is expected to be signed into law on August 1st, which is the last day that that set of politicians will be working in the summer. So there is a very kind of accelerated timeframe.

And then the other thing is, there are regulations that are internal, or under the control of the SEC, and those are things that don’t need to be debated in the Houses. They can do that themselves. And so that’s things like Safe Harbor 2.0. And so there’s various, and we’ve seen various things like that. Someone mentioned SAB 121 earlier. So these things, they have already knocked out the troublesome aspects. And they’ve also, thank God, knocked out all of the pending lawsuits that were sort of making crypto an ice age. So that’s kind of where we’re at right now.

Albert Isola:

Tom, your firm is one of the recipients of some of that treatment that Wasim is referring to. Do you want to talk us through how your perspective is today, and how that’s changed in the recent months?

Tom Duff Gordon:

Yeah, happy to. I think Wasim did a great job of explaining what’s going on. That is a 180 degree turnaround from obviously what we had before. I think the previous panelists referred to it. We had regulation by enforcement. Effectively, this was a motorway where you kept getting speeding tickets but no one told you how fast you could drive. And actively we had the banks being discouraged from providing finance right to Web3 and crypto.

Since then, we’ve got a new administration. Coinbase down with crypto, a bunch of the other US players. We did a lot in the campaign to try and make this the most pro crypto Congress that we’ve ever seen, and we’re really pleased that we have that. And as Wasim was describing, now they’re moving at pace to deliver the regulatory clarity that has been so missing for the last four years.

And just because of the size of the US, if the US isn’t providing that clarity, is actively working to slow the industry down, that has a huge impact in the US, but also globally, because of the weight and the role and the influence of the US in some of the global standard setting bodies.

I want to pick up, if I may-

Albert Isola:

Please do.

Tom Duff Gordon:

… something that Wasim said, which is really important. The headlines are on the market structure bill and on stablecoins. And that’s really important and they’re moving very fast, and we should get clarity on those, we hope, even before the summer break. But something which is less noticed but we think is really kind of important, is that the SEC is doing a huge amount of work behind the scenes just on their rule book. And so, we and others are working really actively with them on tokenization.

And here’s the thing. The US are not going to spend a bunch of time setting up small sandboxes. They are going to move straight to providing a clear rule book for how to trade existing equity debt and funds on chain. We’re about a year away from that, eight months to a year away from that, where you could be taking out of your phone this time next year or in a few months and trading on chain, Tesla, Apple, etc.

So we need, I think in the UK, also in Europe and other places, to look carefully at what we’re doing. Are we just putting everything in a sandbox and then just hoping to kind of experiment? Or are we going to match the US for the speed and the kind of clarity with which they’re now moving? I think clarity legislatively, very important for stablecoins. That’s going to be a big moment for the global market. I think also market structure, figuring out what the SEC does versus the CFTC, but also look under the hood and actually you’ll see a huge amount of very ambitious, very exciting work that the SEC is doing. And I think we need to talk about that more, because that’s also a big opportunity for the UK with the capital markets here if we can really pursue tokenization and be one of the leaders in the field.

Albert Isola:

So you’re comfortable, Tom, just picking up on one of your points, that the work that is going into all of this legislation is sufficiently detailed not to have the unintended consequences that we all fear because of the speed that it’s being done.

Tom Duff Gordon:

I think at the moment we’re confident. Obviously, it’s not all said and done until we kind of get the President’s signature. And equally there will be gaps in the text and technical things that will be filled in by the Fed, and by the SEC, and the CFTC, and the OCC, and others. So we’ve still got a certain amount of road to run on this. But so far I think it looks positive. It’s not just we’ve got David Sachs in the White House, but actually the folks running the CFTC and the SEC and others, we’ve got experts across the administrations and the different authorities, all that have a pro crypto mindset. So that we’re hopeful with good dialogue that we have with them, we’ll get to a good place on that. And yeah, we feel confident and optimistic at this stage.

Albert Isola:

Lisa, you have a huge amount of experience of the political systems. What is your take on the speed with which things are happening in the US, and the speed with which that impact will be felt across other shores?

Dr. Lisa Cameron:

Yeah. I mean, I think it’s a very good thing, actually, that they’re moving at pace now. And I think, well obviously, politically there’s a necessity to that. There’s a majority in the different constitutional aspects of the legislature, so it’s very important to move that at a pace if you want to get things done. It’s very nice to see, actually, a jurisdiction where things are getting done very quickly.

Legislation is never perfect anyway, so it’s always amended at some point, or reviewed or refined. So I think we shouldn’t get too caught up in having to wait until things are perfect at first go. Because I think the important thing is the clarity that it’s giving and the intention. And actually, when I was last in the US, just at the change of the administration, you could actually feel the excitement and the exhilaration that this was a complete shift, and that actually it was opening up momentum for a new kind of digital era. And I think this could be felt, not just by the industry, but the population were very excited as well, that things were moving at pace and that they were getting things done, and that once again they felt the US was going to be in a leadership position on innovation and technology. Which I think is very important for growth. It’s very important for growth. So of course we need to also move at pace in the UK.

I just came back last week from Latvia, speaking with legislators there, and also some members from the European parliaments who are in attendance, who are already saying that they want to revise MiCA now. They’re going to have to do that, because of the shift in gear by the US to remain competitive. I think if you’d asked me last year, I would’ve said, oh, I think MiCA being so clear and there already and having been worked through, sets us back in a sense in the UK. But actually, I think because they’re now going to have to review it, we kind of have a window of opportunity now that we could move, and become more competitive again. And I think that that’s one of the things that’s very important for the UK is now to take some impetus from the work that’s being done in the US. And some of the meetings we’re having with the US Crypto Alliance is to bring the MPs together in the UK Parliament with those in the US, so that they can see what’s being done, and they can see the benefit for the UK in striding ahead as well.

Albert Isola:

And you do a lot of work in Parliament in pushing and promoting this agenda. Are you comfortable that there is a chance that the UK parliamentary system will wake up? I mean, since you left, I haven’t really seen a champion of the industry since you left Parliament. Do you believe that there is sufficient interest with all the other issues that they’re dealing with today?

Dr. Lisa Cameron:

Yeah. I think there’s so much work that has to be done actually. And I think you’re right. We need to have a number of champions in the House of Commons and the House of Lords so that questions are raised every week. Questions are raised to the Prime Minister. Debates are held to speak about jobs of the future and the importance of this industry to speak about how it’s going to contribute to growth across the UK. So that there’s a lot that still has to be done. I mean, we’re still working very hard with MPs to educate them, and there’s still a long, long way to go actually.

We had a number of legislators at the Academy, the Polkadot Academy just last month in Lucerne. So we basically took them back to school to learn about blockchain and gave them certificates at the end. But even when, and I, because I do some work with Code Lab as well, when we had the event with them just before Christmas and we were speaking about tokenization of property, some of the MPs were saying, “Well, what happens to the property when it’s tokenized? Is it okay?” As though it affected the foundations or something of the property.

So we still have quite a lot of kind of basic education. And I think we could see at the Academy as well. Each step that we take is another step in the right direction. But I think we do need to really come together as an industry to make sure that we’re engaging with our MPs, that we’re showing them how important this industry is, and that we are in Parliament as much as possible to get that message across. Because I think the UK does have a window of opportunity, but I don’t want to see that window close.

Albert Isola:

I think we’d all agree. You’re absolutely right that the window of opportunity is now. I mean, MiCA on one side, the US movements in more recent months. Wasim, you’re also quite engaged in the UK aspects of pushing the agenda that we were talking about. How confident are you that we will make progress in the way that we’d all like?

Wasim Ahmad:

Well, I think my experience with the FCA trying to bring my company into the UK has been depressing. I mean, it’s great that we have MiCA, we have 2000 pages of legislation that takes, you know, no startup is going to go to Europe. I mean, large market marketplace companies may go do that, like Circle. But no startup is going to go do that. And I feel like Paris Blockchain Week just a week ago was very, very despondent, and I see the same despondency here.

It can’t take nine months to get approved. It can’t take the FCA telling you they don’t like the look of your management team. And I certainly don’t want to spend time giving all of that documentation to a government agency. It’s not like that in the US. And I think the guidelines are going to be very, very clear. I think the opportunity, going to the very upbeat keynote that we just heard from Elise, where she talked about passporting and connecting in and integrating with existing frameworks around the world is very, very important. But the most important framework that Britain should be integrating with is the US frameworks. It lays out very fast and efficient ways to get to market, and it’s not what the FCA is doing today, which is basically stifling growth and strangling innovation. So shame on you, FCA. It’s not what the British public deserve. It’s not what the government is asking for. So we definitely need to move ahead. And the opportunity is right there. It’s the opportunity for Crypto Britannia.

Albert Isola:

That’s interesting. I mean, I think if you look at passporting as a concept, in Gibraltar, we’ve got passporting into the UK financial services systems. And we agreed while I was still there, 2023, passporting for Gibraltar, the UK to carry on post Brexit, which is the only part of the world that can passport. It’s still not done. And we’re a tiny, tiny, very, very small jurisdiction just seeking to carry on doing what we were doing before. And it’s in the Financial Services Act of the UK legislation, but we’re still transitioning under the previous regime because it’s so complex.

If you think about the US and the UK, where we didn’t have or don’t have passporting in traditional finance, is that not a bridge too far to have a hope that we’re going to be able to get passporting from the UK to the US in an area that has never been passported before? Left alone, two partners that have never passported before in financial services?

Wasim Ahmad:

Well, I think the idea has to be thrown out there. I mean, the will-

Albert Isola:

Overall, failists.

Wasim Ahmad:

I don’t know. I mean, it’s going to take politicians, it’s going to take lawmakers, it’s going to take tech companies to lobby for this. But it makes an awful lot of sense from the British government’s perspective to encourage American companies to come over here. And it’s not just American companies, it’s American venture funds. Same problem, same exact problem, same exact entanglement with the FCA. And then to give that benefit to British companies who want to expand into the US.

Albert Isola:

I think you’re absolutely right. And I believe that it is an ambition worth having and something working towards. There’s no question about that.

Tom, you’ve obviously got a significant presence in the UK and also in the US. You’ve recently been given the last license here. What’s your experience and your ambition in terms of how that relationship between the UK and the US can foster?

Tom Duff Gordon:

Well, I’m optimistic like both of you are. And I think what we do need is now we’re seeing digital asset frameworks begin to emerge in all sorts of different jurisdictions. We have to do that work to try and make them speak to each other. To give you a really tangible example, right now in the EU, there’s a very live debate in Brussels with regard to US fiat-backed stablecoins that are licensed both in the EU but also they’re licensed in the US. And the question is, how on earth do you make sure that we’ve got similarity of regulation? We don’t create issues whereby you have more of incentive to redeem in one jurisdiction versus the other. Perhaps rebalancing the reserves that sit behind these kind of stablecoins becomes complicated. And it’s becoming a real topic, because we had MiCA before we had anything else. So we have to preserve the global issuance, double issuance model of stablecoins. Stablecoins are supposed to go cross-border.

A lot of these markets we’re talking about tokenizing our global markets. And so I think it’s the ambition for the US and the UK to try and develop regulations that are similar. I think Elise made a great point. I came in as she was speaking. There will never be perfect, perfect harmonization. There shouldn’t be. There’s going to have to be an aspect of tailoring. And I, working for a Swiss financial institution, I knew about that firsthand, given the difficulties that Swiss have getting access to the EU.

So there’s never perfect one to one, but if you have enough similarity, you can have substituted compliance, you can have equivalents, these types of things. Particularly for these global markets, for things like stablecoins, we should really strive to make that happen.

If I may, I do think there’s one area in particular where we have to look at what the US is doing, and then we have to draw a lesson and a conclusion for the UK. And that’s the US political decision not to do CBDC. So they’re not doing it. Neither retail CBDC nor a wholesale CBDC. We shouldn’t expect to see that anytime soon in the US. That means as they bring these capital markets on chain and funds on chain etcetera, the settlement asset is not going to be a wholesale CBDC. It might be some form of tokenized commercial bank deposit, but it’s likely to be a stablecoin. So we’ve got to get the stablecoin regs right. And also have them talk and be harmonized with what the US is doing, I think if we want the capital markets here in the City of London to really be able to be future leaning and to take advantage of that opportunity.

So we can continue to pilot CBDCs here. I think that makes sense. We’re not saying either or, but we’re certainly saying preserve the optionality and have a good framework for stablecoins. Because I think we’re going to see the US leaning very hard on them, both in the kind of payment space, but also in the wholesale space. And so, that’s an area where I think the mental model of the UK and Europe and others was moving towards more of a kind of closed system, single central bank ledger, that type of stuff. I think we need to be starting thinking about public permissionless blockchains, regulated stablecoins, etc. Because that is the direction of travel that we perceive on the US side.

Albert Isola:

Do you think, Tom, that stablecoins should be given a focus on a priority politically and from a regulatory perspective here in the UK as the first big push towards getting closer to that industry?

Tom Duff Gordon:

Yeah, certainly. We think that that’s incredibly important. I think the government are going to announce legislation. I would imagine this week would be a good week for them to do it. I don’t know, but let’s see if that comes. And that will include stablecoins, and it will give then a formal mandate to both the FCA and the Bank of England to kind of move forwards.

I think loads of people in this room have looked at the propositions that the FCA and the Bank of England on stablecoins put forward, and a lot of us had some concerns that what was being put forward in the UK looked different to what we see all around the world. Whether you look at Hong Kong, whether you look at Abu Dhabi, whether you look at Singapore, whether you look at Europe, whether you look at any of these markets, we were proposing something particularly from the Bank of England that was more conservative and more restrictive on stablecoins than anybody else.

And I think we’ve got to look really carefully and consider whether that is the right approach for us to be taking, particularly when stablecoins if we get them right and not risky assets. This is not fractional reserve banking, this is fully reserved assets. And I think there is a way to regulate these to make sure that we take out the risks, we capitalize them appropriately, we get the reserves in the right place, and then we can see their growth. And they’re here already, stablecoins, settling trillions of dollars of transactions already and present a big opportunity for the UK. So I think it should be a priority. And we should, I think, try and create a framework which is a bit less capital intensive than the MiCA framework. Which I think was developed in part to ensure that there was kind of strong adoption of the digital euro. Whereas here, I think we need to really push stablecoins.

Albert Isola:

And a risk of getting it wrong and really finding ourselves in trouble. Do we see that?

Dr. Lisa Cameron:

Yeah. I mean, I think that that’s the possibility. And I think that’s why it’s very, very important that we have the meetings that we’re proposing in the Parliament. And so we have with the UK-US Crypto Alliance, we have a series of meetings, somewhat stablecoins actually, coming up. Bringing the legislators together from Congress with UK MPs because we want them to see what’s happening elsewhere.

Because sometimes when you’re in Westminster it’s like being in a bubble. And when I speak to people they say, “Oh well, but London is the financial capital of the world. We are miles ahead.” And I’m saying, well actually, businesses are going to the US again, businesses are going to the UAE. There are issues that we need to address. And until they speak to legislators from other jurisdictions, because all MPs are quite competitive people, then they realize what’s happening elsewhere.

Then they’ll go back and say, “Wait a minute, we need to be doing X, Y, and Z.” And we need to be doing it quickly because this is what’s happening in the UAE, this is what’s happening in the US, this is the direction of travel, and we want to continue to be a hub here, and we want to continue to have a leadership role globally. And I think all the MPs across party will want to sign up to making sure that the UK is in a leadership role. And it’s just a matter of them having the information and understanding in actuality where we sit now. And that this window is open, but we can’t afford to just rest on our laurels and say, “Well, London has always been fantastic. It always will be.” We need to do the work now, and we need to help them to shift the dial actually.

Albert Isola:

When I spoke for one of the first times on what we were doing in Gibraltar in terms of the blockchain framework, the legal framework we introduced in 2018. In 2017 I was speaking at a conference in Shoreditch, and I mentioned the word regulation. And I got booed by half the audience who were all not as smart looking as any of you here. But in those days, it was rather a hippie thing. And I talked there about international standards. And you’ve referenced IOSCO, FATF, Financial Stability Board. Do you think, Lisa, with your experience, that there is any chance of grappling onto those international standards that each of those organizations are promoting as a baseline?

Dr. Lisa Cameron:

Yeah. I mean, I think we should always have reference to those standards. And I think interoperability and having shared standards is the end goal. But I think we have a bit of work to do before that, even on a baseline. Companies can’t get bank accounts here. How can you pay staff and set up a company? Or if you can’t have access to banking? If your process here with the FCA is taking 18 months to two years, and you can go to Dubai and do the same thing in four months, why are new start companies going to stay in the UK?

I mean, I’ve been explaining to people, it’s not like in the Parliament. It’s not like you have a factory down the road where you have bricks and mortar in the UK and you have to stay here no matter what happens. If companies are wanting to be in this sector, they’re global. They can pick up their computer and their phone and go somewhere else. And the times have changed and we need to change with those times to stay competitive.

Albert Isola:

Wasim, you didn’t express any confidence that that change would come. What do you think people like us here need to do to make that change happen?

Wasim Ahmad:

Well, I don’t see that change in the works right this second, but I think once we see some of those laws signed in in the US, that’s a concrete turning point, and I feel like that will… The beauty of where Britain is right now. So Europe, they’ve done their thing, they’ve called their shots. So maybe they’ll be stuck in a revised kind of situation.

The US will crystallize its regulations in the next sort of, let’s say six months. Britain has an opportunity. The FCA timeline, which is 2026, we’ll have sort of our ducks in a row. Originally, I thought that was way too far. I thought it would be great if Britain had the right regulatory structure before the US. Now I believe actually it’s a perfect opportunity that they can sync up with things like the market structure bill with some of the topics and issues that Tom mentioned around stablecoins.

So I think, yes. I am upbeat now. I’m more upbeat now than I was in December last year. Because there is an accelerated timeframe, and I think we have an opportunity. And the opportunity for Britain is very much, or even London, is to maintain that differentiated approach to financial services. That’s what made London the financial center of the world. And we went into Europe and things got a little more sort of the same everywhere. We need to get back to that. So we have to have differentiated offerings here.

Albert Isola:

Fascinating. Tom, what’s your perspective on Wasim’s optimism?

Tom Duff Gordon:

No, I look, I agree, I agree. I think the UK is going to get there. We need to get it right. And I don’t want us to rush to something and get it wrong. I think we should take the lessons from MiCA, take the lessons from the US, etc. But what I would love to see, and I think we’re going to see it this week, I think from the government, some signals of renewed interest, a bit of momentum. I think we need to have more focus, more prioritization on this topic. Let’s lean in. Let’s look at it carefully. And let’s make sure that we land the right set of rules in good time next year.

So I think that’s more like, it’s probably a little bit on the late side, but I think it’s still okay, and let’s just get it right. I think that’s the kind of the key thing here. And if we do do that, then we’re also hopeful that some of the existing bits of UK regulation that have kind of been used to be the thing that controls crypto, absent kind of licensing, can be recalibrated and turned down.

So we have things called fin prom, financial promotions regime. Some of you in the audience will be kind of very familiar with it. And that’s been used to a good effect, I would say, potentially by the FCA from their perspective in keeping a lid on this industry. But I think as we regulate it and we license it and we move forward, I think there is going to be a really important opportunity to kind of see have we got that right. And particularly the idea that we have cooling off periods. If anyone wants to open an account with Coinbase, some of the rules around that are extremely difficult frankly. And there’s a 24-hour cooling off period, and we don’t see that anywhere else in the world. And so I think there’s an opportunity to get the rules right. And then there’s an opportunity to look at the existing rules and then see whether we can tweak those to order it to encourage adoption in this space.

Albert Isola:

So you’d agree with Wasim that it’s best to wait to see what the US comes out with, and ensure that they are in some way not the same but synced in terms of learning from their lessons?

Tom Duff Gordon:

I think we can work in parallel. And that’s by the way, what’s happening. I think there’ll be consultations and discussion papers from the FCA and the Bank of England throughout this year. My team is kind of responding to a host of those, they have been kept very, very busy. So I think it’ll happen in parallel, but we will have the benefit of looking at probably the market structure and the stablecoin bill come the middle of this year or into Q3, and that is before the cement dries on the UK regime early next year. So I think let’s keep moving in parallel, and let’s try and learn the lessons where appropriate.

Albert Isola:

Fantastic. And lots of hope there. I’m delighted to hear. And Mr. Bowater is standing up telling us that it’s time to go. Lisa, Wasim, Tom, thank you very much. Absolutely fascinating. Thank you.