laws

Fair crypto laws ‘possible’ in the US but needs ‘a lot of work’ — Crypto Council adviser

Crypto Council for Innovation adviser Sean Lee said more education is needed for policymakers and financial regulators.

There are still industry executives that remain hopeful the United States will develop laws to treat crypto fairly; however, an adviser to the Crypto Council for Innovation warns it will take “a lot of work.”

Speaking to Cointelegraph on March 29 at the World of Web3 (WOW) Summit in Hong Kong, Crypto Council for Innovation adviser and co-founder of Odsy Network, Sean Lee, said that fair treatment of the crypto industry is possible in the United States.

He commented that financial reform was addressed following the 2008 financial crisis so there is no reason the same cannot be applied to crypto.

“It is possible, it will take a lot of work […] and usually implementation comes after a massive crisis, which we have right now.”

The comments come in the wake of a massive crypto crackdown by U.S. financial regulators that some industry commentators have labeled a “war on crypto.”

*CCI Senior APAC Adviser Sean Lee at the WOW summit. Source: Twitter*

The FTX meltdown in November appears to have given regulators and anti-crypto lawmakers plenty of ammunition to bring the hammer down on the fledgling crypto industry. However, Lee pointed out that FTX is not crypto, it was just a centralized trading venue, adding:

“If you don’t properly regulate centralized entities, well, we’ve seen back in history many times about what can go wrong.”

He said that there was a lot of education that needed to be done, and this is what organizations such as the Crypto Council for Innovation are trying to achieve.

The council is striving for dialogue with politicians to help them understand where things are and “help them also understand what other jurisdictions are thinking about,” he added.

The assistance can be provided to “help craft more progressive policies” that allow for both the communities and companies to understand the landscape much better.

Sheila Warren, CEO of the Crypto Council for Innovation, made similar arguments in a statement on the recent CFTC Binance lawsuit, stating that it “will hopefully mean the end of people coming into the crypto space trying to take advantage of the lack of regulatory clarity in the United States.”

She also said that the CFTC’s classification of certain cryptos as commodities was “a powerful shot across the bow of the SEC.”

In a related development, SEC Chair Gary Gensler this week requested a larger budget to tackle what he termed the “Wild West” — crypto markets. Therefore, it remains unlikely that Uncle Sam’s war on crypto will be over any time soon.

French central bank governor pushes for crypto licensing ahead of EU laws

The Bank of France’s head said turmoil in the crypto markets proves the need to move to a mandatory licensing scheme for crypto firms “as soon as possible.”

The Bank of France’s governor has called for more stringent licensing requirements for crypto companies in France, citing the current turmoil in the crypto markets.

During a speech in Paris on Jan. 5, Francois Villeroy de Galhau said France shouldn’t wait for upcoming EU crypto laws to enact obligatory licensing for local digital asset service providers (DASPs).

The European Parliament’s Markets in Crypto Assets bill (MiCA) that provides a crypto-licensing regime isn’t expected to come into force until potentially sometime in 2024.

According to a Jan. 5 Bloomberg report, Villeroy addressed the country’s financial industry in his speech, stating:

“All the disorder in 2022 feeds a simple belief: it is desirable for France to move to an obligatory licensing of DASP as soon as possible, rather than just registration.”

Currently, crypto businesses providing crypto trading and custody are required to be “registered” with the Financial Markets Authority (AMF), the country’s market regulator.

A DASP license is optional, with those licensed forced to comply with a slew of requirements related to business organization, conduct and financing.

However, out of the 60 AMF-registered crypto firms, none are currently licensed as a DASP.

*Villeroy speaking in December 2017 at a panel in Paris. Source: The Jacques Delors Institute*

The call from Villeroy comes after an amendment was proposed in December by Senate finance commission member Hervé Maurey to eliminate a clause allowing companies to operate without a license.

Current laws in France allow firms to operate unlicensed until 2026 even if, or when, MiCA passes into law and establishes a licensing regime.

Deliberations in Parliament regarding the amendment will begin in January.

MiCA has been grinding its way through the EU Parliament since September 2020.

On Oct. 10, the crypto framework was passed by the European Parliament Committee on Economic and Monetary Affairs, the result of negotiations between the EU Council, the European Commission and the European Parliament.

The final plenary vote for MiCA was rescheduled from the end of 2022 to February. European Parliament member Stefan Berger explained to Cointelegraph in November the reason for the delay was “the enormous amount of work for the lawyer linguists, given the length of the legal text.”

Zero-knowledge KYC could solve the privacy vs compliance conundrum — VC partner

Zero-knowledge Know Your Customer (KYC) would allow businesses to adhere to strict AML/CTF rules while ensuring customer privacy.

As the Web3 industry matures, zero-knowledge Know Your Customer (zkKYC) is becoming more widely discussed as a means to comply with strict financial regulations while maintaining user privacy, according to the partner of a venture capital firm.

In an interview with Cointelegraph, John Henderson, partner at Australian-based venture capital firm Airtree Ventures, said the successful implementation of a zkKYC system would be “great news for both regulators and consumers” and could increase cryptocurrency adoption:

“Institutions and retail users are more likely to participate in DeFi if they can be confident that they are complying with their AML/CTF obligations.”

Henderson explained a zkKYC system would allow users to prove certain things about themselves to service providers without having to divulge personally identifying data such as their names or identification documents.

In theory, the sharing of that information would be enough to satisfy Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulatory requirements placed on the crypto industry:

“[The system] involves a trusted third party validating my personal information and then issuing a cryptographic proof to my personal wallet, which I could then choose to share, or share attributes of, with financial service providers.”

The benefit of such an approach is that no personally identifying information could be leaked in the event of a security breach of a service provider such as a crypto exchange, Henderson claims, with the identification documents only recoverable when required by authorities.

Many in the crypto community have been critical of the way their personally identifiable information has been handled by some crypto platforms.

Recently, the community shared their concerns after court documents published on Oct. 5 publicly disclosed the personal information and transaction history of thousands of Celsius customers, with some warning they could be used to dox users.

Calls to improve privacy for individuals were also loudly sounded at the September Converge22 conference in San Francisco.

Jeremy Allaire, CEO of stablecoin issuer Circle, expressed the need for “advancements” in technologies that prove identities and credentials while simultaneously ensuring individuals’ privacy.

Henderson however admitted that “storage of sensitive information is still an unsolved problem,” sharing two ideas on how the management of such information could take place:

“One idea would be to have trusted entities hold identity documents off-chain and port proof of identity on-chain, without the original documents. Another idea is to sign a wallet transaction with a regulatory institution, who would then register that account with an identity.”

Despite the challenge, Henderson was adamant a zkKYC protocol will form the “building blocks of on-chain reputation scores” allowing “more useful” financial products and services.

“My priority is onboarding the next hundred million users to crypto,” he said, “If we want to achieve internet scale, we need a solution for AML/CTF compliance.”

Airtree Ventures led a $4.7 million seed round into ReputationDAO on April 13, a decentralized autonomous organization that aims to provide a financial reputation and identity service for decentralized finance (DeFi).