Ripple, the company currently being sued by the U.S. Securities and Exchange Commission (SEC) over its XRP token, has published a ‘regulatory white paper’ of recommendations for British lawmakers and regulators as they look to regulate the industry.
“The U.K. has long hosted one of the world’s leading financial centers. Now the U.K. has the opportunity to build on this foundation to make the most of the next wave of global financial innovation by developing its crypto asset sector,” reads the paper.
Predictably, however, the company’s statements to the ‘crypto’ media are far more hawkish than the tone taken to regulators.
“In order to be able to operate most effectively here, in order to continue to grow our business, it matters what the regulatory framework looks like. And so we are invested in trying to ensure the best outcomes,” Susan Friedman, Ripple’s head of public policy, told The Block.
Such honesty is somewhat refreshing, but recent events have shown that the ‘best outcomes’ for digital asset companies like Ripple do not always reflect the best results for the industry in practice. Just look at FTX’s Sam Bankman-Fried, who published his own set of policy recommendations for the digital asset industry just weeks before being exposed for gambling away customer funds in part to save his failing crypto hedge fund, Alameda Research.
The fact that Ripple is fighting regulators abroad as it defends itself against the SEC for allegedly offering unregistered securities in violation of U.S. securities laws won’t be helping, either.
On the other hand, Ripple’s timing could be worse. The U.K. has engineered several initiatives aimed at harnessing the increasing popularity of digital assets, with the Law Commission completing a review of current laws governing the industry in July and finding that a raft of regulations needed to be updated to accommodate the nascent technology, including around personal property and transacting via digital assets. There’s also the long-awaited Digital Markets and Finance Bill, which would introduce rules governing the use of stablecoins in the U.K. and prohibit the promotion of digital asset products without a license.
The paper contains three overarching recommendations that the U.K. needs to take in order ‘to sustain its ambitions as a major financial, technological and investment hub’:
- An overarching and nuanced regulatory framework that treats the different actors of the ‘crypto’ asset space according to their own risk profiles
- An increase in regulatory resources and inter-agency coordination to ensure the public sector can respond to industry developments in a timely way
- A commitment to public education that develops policymakers’ and the wider public’s understanding of the ‘crypto’ sector’s benefits and risks in line with its development that contributes to a more balanced discourse
The paper also compares the U.K.’s regulatory efforts with those made in other jurisdictions. According to Ripple, the success of initiatives such as Singapore’s holistic digital asset framework and Dubai’s establishment of a dedicated regulator demonstrate three ‘best practice’ points that U.K. lawmakers should adopt going forward:
- A comprehensive, risk-based framework for digital asset regulation;
- Distinction between different types of digital assets based on function, leading to a clear regulatory perimeter; and
- Well-resourced regulatory authorities
One of the more concrete recommendations concerns regulatory resources. On this point, there’s a significant amount of buttering up: “Whatever challenges the U.K. faces in developing as a global center for crypto, it must be acknowledged that the U.K. regulators are impressively open to innovation, well-versed in their subjects, and continue to make good-faith efforts to provide the right public-sector response to breakneck industry innovation.”
But according to Ripple, there’s always room for improvement. They advocate for providing regulatory institutions with the resources to attract technically competent staff and increase their headcounts, regardless of the macroeconomic environment. They also cite the “urgent need” to improve digital asset education at all levels of society and highlight that “some prominent M.P.s have recently treated the crypto asset industry as a punchline and political football. The result has been a perpetuation of harmful stereotypes and a stymieing of progress in developing the U.K.’s crypto asset sector.”
To evidence this, they say that 66% of the top 50 trending news stories in the last year have focused on ‘alarming industry risks,’ compared to just 14%, which focus on the sector’s potential benefits. Maybe Ripple’s recommendations will help this; cratering asset prices and the ongoing collapse of FTX and the impending collapse of the network of companies surrounding it certainly will not.
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