I think its fair to say that blockchain and its underlying DLT technology has matured to a spotty teenager. This maturity and the underlying risks that come with it have not gone noticed by various regulatory bodies around the world.
Blockchain growing pains – Regulatory oversight and supervisory nodes
First to act, Finland’s Financial Supervisory Authority (FIN-FSA) is set to assume its role as a registration authority and supervisory agency for crypto industry participants as new legislation comes into force this week. The news was revealed in an announcement published by FIN-FSA on April 27.
With Finland’s Act on Virtual Currency Service Providers which came into effect on May 1, the watchdog clarifies that it will henceforth be statutorily required to register all crypto exchanges, custodian crypto wallet providers and cryptocurrency issuers operating in the country.
As FIN-FSA notes, the new Finnish legislation has been drafted on the basis of the European Union (EU)’s Fifth Anti-Money Laundering (AML) Directive. As reported, the latter came into forcein July 2018 and established a revised legal framework for EU financial watchdogs to regulate cryptocurrencies and mitigate the risks of money laundering and terrorism financing.
FIN-FSA outlines that registration will necessitate statutory compliance with multiple rules, including those pertaining to the storage and protection of client funds, segregation of service provider and client assets, rules for the marketing of services and heeding AML/CFT laws.
The watchdog also announced a briefing directed to the crypto industry on May 15 to be held at the Bank of Finland’s auditorium in Helsinki. The briefing will reportedly lay out FIN-FSA’s registration timeline and the steps and schedule for the procedure, as well as addressing formal and draft regulations and guidelines applicable to industry participants.
Similarly, the Boston Federal Reserve released a white paper on Wednesday that hopes to tackle some of the problems regulators are facing as blockchain technology becomes widely adopted.
Noting, in kinder words, that the nascent technology was once thought of as being something particular to anarchist kooks, the regulator said that the growing adoption of blockchain means it has to deal with it.
And one way the regulator has suggested this can be done is to have ‘supervisory nodes’ in blockchain systems. As most of you will know, systems that use the technology are made up of different nodes. Any device with an IP address can be used as a node and each one maintains a copy of a specific blockchain and may be used to process transactions.
What the Boston Fed is saying is that regulators should take control of some nodes in order to monitor transactions.
The regulator claims that having access to blockchain nodes may give it the opportunity to monitor companies’ activity in the financial markets.
“We can’t alter the underlying fabric on which critical assets move without watching it for risks to the system or to individual banks related to technical problems, market weaknesses [and] liquidity problems,” said Jim Cunha, SVP treasury and financial services at the Boston Fed.
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