Blog: SIFMA white paper outlines recommendations for digital asset policy – Financial Regulation News – Financial Regulation News

Federal policymakers need to regulate the evolving market for digital asset products and services to build investor confidence, according to a new white paper by Dr. Peter Ryan, managing director and head of International Capital Markets at the Securities Industry and Financial Markets Association (SIFMA).

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“Without clear rules of the road that apply to all actors in the digital assets’ ecosystem, it will be difficult to build investor confidence in these developing markets or facilitate responsible innovation,” Ryan wrote.

Otherwise, regulated financial institutions that operate robust risk management and compliance systems will be reluctant to participate in digital asset markets or adopt blockchain technology solutions. And without the participation of mainstream, regulated financial institutions, the benefits of new blockchain technologies for financial markets will not be fully realized, Ryan contends. In turn, that could result in digital asset markets evolving in ways that could pose risks to investors and the stability of the financial system.

He points out that the Biden Administration has taken some steps in this direction, with an executive order by President Joe Biden in March that directed executive branch agencies to address the risks and potential benefits of digital assets and their underlying technology. Since then, the U.S. Treasury, Commerce Department, Justice Department, and Financial Stability Oversight Council (FSOC) have issued reports that seek to address gaps in digital assets policy.

Ryan outlined some key principles that SIFMA believes should be part of any policy on digital assets. One, investor protection should be at the forefront of digital asset policymaking. “Without robust investor protections, it will be impossible to build confidence in the integrity of digital asset products and markets, inhibiting their growth, and diminishing the potential benefits that these new technologies can offer investors, and ceding leadership in these markets to other jurisdictions around the world,” he wrote.

Two, digital assets regulation should be “technology neutral,” meaning the underlying risk and regulatory treatment of a particular activity should not be affected by the technology used to conduct that activity, and regulatory results should be the same for similar types of risks and activities.

Three, policymakers should distinguish between blockchain technology used solely to support “traditional” assets and native blockchain assets. And four, for these new classes of assets, policymakers should leverage or apply existing and well-understood regulatory frameworks rather than creating a new regulatory architecture.

“We welcome the important work that the Administration and members of Congress have undertaken to date in this important area and encourage them to move with deliberate speed to fill regulatory gaps in the digital assets ecosystem. As they undertake this important work, we believe that they should apply the principles outlined here,” Ryan concluded.

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