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Elliptic was privileged to be joined by Simon O’Brien and Waqar Chaudry from Abu Dhabi Global Market (ADGM) in the latest installment of our webinar series. We discussed key issues in crypto regulation, the features of ADGM’s June 2018 Crypto Asset Guidelines, and the direction of global regulatory trends.
We recommend listening to the webinar to get the full overview and hear their invaluable insights – but here are our key takeaways from the discussion.
#1 Regulators can also be innovative.
Many regulatory bodies have responded with concern to the emergence of crypto-assets and have tried to squeeze new crypto-businesses into old regulatory structures. ADGM took a completely different approach.
In establishing its regulatory framework for crypto-assets, the ADGM has designed a new authorization regime supported by detailed but non-prescriptive guidance designed with the specific characteristics and nuances of crypto-assets in mind. Instead of trying to shoehorn new technology into already existing structures, they have devised an approach that can ensure rigorous control while allowing a diverse range of crypto companies to implement regulatory guidelines in practical ways.
Staffed by regulators with deep expertise and technical knowledge, ADGM is able to “go under the hood” and examine how new crypto platforms, products and services work in practice. This allows them to think about how regulation can evolve with, not just against, technology.
In short, regulators should not just be reactive to technological innovation – they can also be proactive innovators of new regulatory approaches.
# 2 Regulation helps improve quality.
According to ADGM, one of the outcomes of the authorization process they implemented for crypto-asset business was to ensure that reputable crypto exchanges with increasingly higher compliance standards approached them for approval.
Rather than stifling innovation, well-designed regulation can enable the industry to achieve higher standards while providing room for responsible growth.
This is consistent with our experience here at Elliptic. While recent media coverage has focused on the hurdles the crypto industry faces amid Bitcoin’s price decline, we’re seeing compliance officers at crypto exchanges take their regulatory obligations more seriously – and embrace the opportunity to find innovative ways to achieve best practices.
#3 Transparency is key in managing AML risks.
Our principle underlying the ADGM framework is that businesses can only offer crypto-assets that are traceable and transparent. According to ADGM, crypto-assets that are opaque and untraceable pose tensions for the purpose of AML requirements.
Transaction monitoring solutions like the ones we develop at Elliptic are a key component of ensuring transparency in the crypto space and enabling the successful implementation of AML frameworks.
#4 Collaboration is essential for success.
For regulation to work, regulators cannot operate in a vacuum. They need to interact directly with the crypto industry to understand the technology in detail so that regulation can be designed appropriately; and they must work closely with other regulators to share knowledge, experience and expertise so that regulation can be implemented appropriately.
ADGM designed its regulatory framework in close consultation with crypto companies. Since then, he has engaged with fellow regulators around the world to coordinate and share information on approaches to financial technology regulation, ensuring that regulatory frameworks remain robust.
At Elliptic, we will be holding future webinars to explore these and other trends in crypto regulation and compliance.
Contact us to learn more about our webinar series.
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