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In the latest installment of the Salzburg Questions for the Future of Finance, fintech advisor and consultant Loretta Joseph explores the benefit of introducing a unified regulatory approach for a new digital age
This article is part of the Salzburg Questions for the Future of Finance series by the Salzburg Global Finance Forum
Digital assets are a new asset class, of which virtual and crypto assets are a subset. With a market capitalization of more than USD 1 trillion (and growing), we cannot ignore this new class.
As this new asset class grows, emerging technology such as blockchain sees innovation blurring the lines between tech and finance. We see policymakers challenged more and more as new business models based on peer-to-peer transactions, communities, and platforms drive disintermediation of the very institutions they govern.
Just as Bitcoin grabbed the attention of both retail and institutions, so are securities token offerings and digital offerings of tangible asset classes. Moving into decentralized finance and non-fungible tokens, it’s a brave new world.
Many jurisdictions are experimenting with or have quasi-regulatory frameworks around this new asset class. Investor and consumer protection guidance and anti-money laundering, and combatting the financing of terrorism considerations need to be addressed as mainstream adoption escalates. With the decentralization and democratization of traditional financial products, we are stepping into a new financial age. The emerging markets are particularly interesting in this paradigm shift as large youth populations across Africa and India are already adept at using smart devices and mobile money.
Currently, policy writers and regulators have struggled to keep up with technological advances and innovation-led financial services. Regulators in the emerging world are not afforded the “wait and see” approach as the rapid social adoption of cryptocurrencies is already having a significant impact on economies.
Policy writers are not technologists, and technologists are not policy writers, so forging new policies needs a more holistic and collaborative approach. Legacy systems are less inhibitive in the emerging world, and these nations tend to leapfrog as innovation drives change. For digital asset regulations, the small island states have been the most progressive in legislative amendments. Interestingly, the Commonwealth has many member countries in the emerging world of which common law principles apply.
A unified regulatory approach will allow countries to work more effectively with each other. Harmonized standards are integral. It will also enable entrepreneurs to move seamlessly between jurisdictions and scale up their businesses which, in turn, will support economic development going into this decade. Policymakers and stakeholder collaboration in many of the emerging economies have proved this approach works. If we get it right, I absolutely know that we can thread together financial, digital, and social inclusion.
We can address well-being and isolation. Coming out of the COVID-19 pandemic gives us the ideal opportunity for this to happen. Policymakers need to be attuned to technology more than ever and be educated about the power of decentralization.
Concepts of open finance, and more broadly, financial inclusion, are truly something we can all be proud of where, in several decades, the then world leaders can say, “Yes, we took the opportunities we saw. We mitigated the risks. But we also seized the opportunities of Fintech, and yes, we did in an inclusive way.”
Many citizens are banked and included in the financial system in many high income countries, so change can be incremental. Unfortunately, few countries in the emerging world are afforded this luxury. The benefits of sensible legal and regulatory frameworks, therefore, are exponential. New players and entrepreneurs are disrupting the incumbents in traditional finance globally. If technologists can build businesses with legal clarity and regulatory certainty, especially in the emerging economies, we can enable better and more inclusive social and economic models.
Tell me what you think. What other policies do we need to govern the intersection of finance and tech?
Loretta Joseph works for AP Capital in business development, Australia, and is a board member of the Regional Centre of Excellence (Mauritius), hosted in collaboration with the OECD. As managing director of Lo-Jo Consulting, she regularly advises a number of global organizations on responsible adoption of financial technology – particularly blockchain – and works with policymakers, governments, and industries worldwide. Loretta has shared her expertise with the OECD, OSCE, Bermudian and Serbian governments, and South Australia's Premier in the past. She also remains an external resource to GIABA, an institution of the Economic Community of West African States. Furthermore, Loretta sits on Humanity 2.0's papal council and the advisory boards of UWS Business School and Blume Ventures. Loretta has worked for major investment banks at the board, managing director, and senior management level, including RBS (India), Macquarie Group (India), Deutsche Bank, Credit Suisse, and Elara Capital (India). She received the Fintech Australia Leader of 2017 award, plus the Sancta Sophie College (Within Sydney University) Alumni Award in 2016 and 2018. She is the current 2019 Alumni Award winner for Social Impact. Loretta holds a bachelor's degree in economics from the University of Sydney and is a Salzburg Global Fellow.
The Salzburg Questions for the Future of Finance is an online discussion series introduced and led by Fellows of the Salzburg Global Finance Forum. The articles and comments represent opinions of the authors and commenters and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Tatsiana Lintouskaya: tlintouskaya@salzburgglobal.org