While XRP investors and enthusiasts coming from backgrounds other than the financial sector have understood and identified the huge potential of DLT and the problems it aims to solve, some of us may still not be fully aware of the complexity and multiple dimensions of what such regulatory clarity entails.

It has been widely pinpointed by industry experts and key players that one of the main obstacles for the mass adoption of digital assets like XRP is the lack of regulatory clarity:

Regulatory clarity has a huge ability to drive digital asset and blockchain adoption.
-Brad Garlinghouse

While XRP investors and enthusiasts coming from backgrounds other than the financial sector have understood and identified the huge potential of DLT and the problems it aims to solve, some of us may still not be fully aware of the complexity and multiple dimensions of what such regulatory clarity entails.

Last month, a very insightful article that offers further detail on these challenges and the efforts needed to achieve a proper regulatory framework for Distributed Ledger Technology (DLT) emerged in the website of one of the largest and most well established banks in Spain: BBVA.

This article places the spotlight on the inputs from José Manuel González-Páramo, BBVA's Head of Global Economics and Public Affairs in the Digital Currency Roundtable organized by the Institute of International Finance (IIF). Held on April 10th in Washington D.C., the roundtable brought together central bankers, regulators, tech experts and industry leaders to discuss different aspects regarding regulatory frameworks for digital assets.

The Six Challenges
In the framework of regulatory clarity, according to BBVA's text, González-Páramo pointed out six major challenges for blockchain technology to overcome:

  1. How to address anonymity, which is an inherent feature of cryptocurrencies and contributes to fraudulent and criminal activities. Initiatives like the recently enacted AMLD5, the European Union’s fifth directive relating to the prevention of money laundering, have begun to address this issue.

  2. Problems arising from the lack of a geographical region associated with distributed ledger technology implementations. Who is accountable if something goes wrong? In the case of intelligent or smart contracts, especially in international trade, there are additional factors to take into consideration. The parties signing the contract can be subject to different laws if they are in different regions. If a smart contract doesn’t work as expected, who is responsible and under which legal jurisdiction?

  3. How to assign a legal value to a blockchain-powered deal. Submitting a deed that conveys ownership or verifies the existence of an asset in a blockchain-enabled operation acts as concrete proof of both ownership and existence of said asset. Will the courts of a various countries accept the validity of this kind of document?

  4. Solving problems associated with data privacy and consumer protection in blockchain deployments. DLT is decentralized, which means data flows freely across borders, which could breach existing local regulation such as the right to be forgotten, as established by the European Union’s the General Data Protection Regulation (GDPR).

  5. Recognition from regulators and banking supervisors of the legal validity of financial instruments issued using blockchain. France and Luxembourg have already approved laws addressing this issue, allowing securities to be issued by blockchain and recognizing their legal validity.

  6. Quantifying and classifying taxes and accounts associated with cryptocurrencies. In this case, it is critical from a prudential standpoint that these assets are recorded in the accounting ledgers. The Basel Committee on Banking Supervision is already working to address these issues.

The Opportunity
This is not the first time that BBVA, a founding member -alongside with Ripple and other key industry players- of the International Association of Trusted Blockchain Applications (INATBA) has expressed its interest in the use of this technology and also the vision of Ripple on the Internet Of Value:


BBVA's advocacy for a proper regulatory framework, along with the participation of other key players in the industry is instrumental. In the course of this, one of the key takeaways is González-Páramo's view on what is needed for DLT to thrive:

According to José Manuel González-Páramo, recent initiatives demonstrate that greater collaboration between regulators and banking supervisors and the private sector – including significant participation from the financial industry – will pave the way for the safe and profitable adoption of this technology on a mass scale.

Collaboration between the key players in the financial industry will enable safe and profitable adoption -of DLT-, on a mass scale. Perhaps it can be said louder, but not clearer.

References:
1.https://ripple.com/insights/blockchain-and-digital-asset-use-in-asean-ceo-brad-garlinghouse-in-convo-with-imfs-ross-leckow-at-singapore-fintech-festival/?ez_cid=CLIENT_ID(AMP_ECID_EZOIC)
2.https://www.bbva.com/en/bbva-joins-inatba-the-international-blockchain-alliance-promoted-by-the-ec/
3.https://www.iif.com/Portals/0/Files/Event Files/2019_IIF_Digital Currency Roundtable.pdf?ver=2019-04-05-101047-203&timestamp=1554473453505
4.https://www.iif.com/
5.https://inatba.org/
6.https://twitter.com/bbva/status/880436985202167809

Photography: Steven Lelham