“Unblocking the Blockchain: Regulating Distributed Ledger Technology”
Distributed ledger (“DL”) technology has been called the “e-mail for money” and “a first attempt at an ‘internet of finance’” that may significantly affect or even “revolutionize the world of finance” having the potential of reshaping the current financial services technical infrastructure. The flurry of recent innovation and investment by stakeholders in the technology and finance sectors in exploring ways in which DL technology could be harnessed for use in financial transactions has caught the eye of financial regulatory agencies.
In an effort to avoid wasting resources on innovation that is ultimately stifled by regulation that may be hard to anticipate as such technology develops, stakeholders have called on regulators to be more involved during the development process, rather than only afterwards. Recognizing the potential benefits that DL technology innovation may have for the economy, and desiring to promote those benefits while simultaneously safeguarding financial stability and protecting consumers, some regulators have heeded these calls and adopted a proactive rather than reactive approach, by engaging and collaborating with the fintech industry earlier than usual, at the innovation stage.
The goal of this new relationship is, on the one hand, for DL technology to be developed to preemptively address regulatory concerns before new products arrive on the market and become systemically relevant, alleviating the need for excessive new regulation, and, on the other hand, for any new regulatory framework to be tailored to the peculiarities of the technology and therefore be better suited to protect consumers and address systemic challenges, while still promoting innovation.