The emerging clarity in digital asset regulation

🚀 At Braithwate, we have long been excited about the potential of digital assets to improve financial services, for retail customers, wholesale markets and all the intermediaries that service them.

📖 The next 12 months looks likely to deliver an avalanche of new regulatory requirements; we see this as a positive step for the industry, recognising the increasing importance of digital assets and providing clarity for users and firms.

⚖️ On balance, we expect the emerging regulatory framework to look pretty similar to what is in place for TradFi today:

• Licensing and authorisation requirements to help customers understand which firms can be trusted

• Prudential rules to ensure that firms run safe and sound business models and to protect depositors against excessive risk-taking

• Conduct of business and investor protection rules to ensure that markets work fairly and information asymmetries don't result in harm to customers

• Financial crime rules to prevent money laundering, terrorist funding, bribery and corruption and fraud

• Cyber, information security and data protection rules to ensure users' information is held securely and not misused

❓ It can sometimes be difficult to see how these rules apply to DeFi, where the traditional role of a regulated intermediary has been replaced by smart contracts and DAOs. However, based on the emerging case law and enforcement actions, we expect regulators will provide clarity on their interpretation in the coming months.

💡 Ultimately we expect most regulators to apply the principle of Same Risk, Same Rules.

☎️ Braithwate has extensive experience helping firms get licensed and build pragmatic risk and compliance frameworks. Give us a call to discuss how we can help your firm.