Time for a reset of the crypto opportunity

The author is the managing director and president of Bny Mellon

The events of the past few weeks offer everyone who follows the cryptor room a warning story. The blockchain technology and the resulting cryptoassets were built on the promise of a revolution in finance, but in the middle of the latest market disorders it is time for a reset and a review of the opportunity.

cryptocurrencies have dominated the headlines, but they are a small part of the world of digital assets. In order to fully exploit the unused potential of the emerging ecosystem for digital assets, the managers of the public and private sector must work together in order to accelerate an intelligent framework of regulation that combines traditional and digital asset systems.

The first is the recognition that the regulation should enable the financial industry to accept innovation carefully.

In the past two centuries, the world has seen many generations of financial technologies. Digital Ledger representations of traditional assets such as cash, bonds and stocks could be an important progress, since the original computer Ledger and real-time payments were previously carried out on paper. This can lead to an improvement in the accuracy of the records, simpler handling of certain types of assets such as real estate and loans and faster and more efficient processing.

The distributed LEDGER technology underlying the cryptoassets can be used to underpin a new market infrastructure that offers advantages for the financial system. The digital currencies of the central banks and tokenized bonds examined by the great jurisdictions are just a few examples of the efforts to use the advantages of this new technology.

It was only last month that the Federal Reserve Bank of New York and the Monetary Authority of Singapore announced a joint effort to investigate how digital wholesale currencies of the central bank can improve the efficiency of cross -border wholesale payments with several currencies. Research and innovation around digital Ledger technology should therefore be promoted in future regulatory framework and not punished.

The second principle is to maintain the basic principles of customer protection, orderly markets and clear regulatory guidelines - regardless of the new technology, the investment class or the type of company that serves them.

Our established framework conditions for market health and security in the USA were born from a number of depression. The further development of banking and securities regulation was not always linear, but remained rooted in these principles. Digital assets that operate outside of these principles run the risk of undermining the wider financial system.

The effects of mixed customer assets, poor disclosure and lack of internal controls should remind us that although the occupation of characters and products can change, the script of financial market disorders remains painfully familiar.

Although the technology has developed, certain established concepts should apply to all market participants and assets regardless of their technological cover. This includes good corporate management, separation of customer assets, clear records, security and technology standards, capital and liquidity requirements, limits for extreme leverage, protection against money laundering, strong risk management and regulatory guardrails.

banking institutions are already acting within a regulatory framework. This perimeter gives both privileges and duties and breathes the most important currency to the global financial system: trust. The trust of investors and the public sector is based on the knowledge that the game has rules.

Without trust in our financial system, we will not have anything useful. Even worse, without the resulting confidence in the system, we could displace the opportunity to use an exciting technology that could help advance the industry.

Since the majority of institutional investors are interested in tokenization, Distributed-Ledger technology could be the next financial border. Certain elements of the digital-asset area have merged disruptive innovation with generally disruptive behavior, but they should not spoil everyone else.

A comprehensive regulatory framework is required, but a large part of the underpinning already exists and can be expanded by the regulation of traditional assets.

There is a way to find. We should accept the innovation of digital assets and align them to established rules and measured regulatory principles in order to protect customers and promote resistance. We also protect the highest asset in general - the confidence in our financial system.