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US Treasury Department Says Crypto Is ‘Poised to Impact Innovation in Financial Services’

August 01, 2018

The US Treasury Department has released a much-anticipated report on emerging trends in the financial sector, including cryptocurrency.

The seminal report is addressed to President Trump and is designed to outline ways to remove bureaucratic barriers to economic innovation and encourage experimentation.

Here’s a look at the highlights related to blockchain and cryptocurrency.

Crypto and Distributed Ledgers Set to Impact Financial Services

“Parallel to these growing improvements in data and connectivity are expanding complementary technologies, such as cloud computing and machine learning. These technologies enable firms to store vast amounts of data and efficiently increase computing resources. Unsurprisingly, for financial services firms, data analytics and machine learning (or artificial intelligence) are two of the top three areas of tech investment. Other technology developments that are poised to impact innovation in financial services include advances in cryptography and distributed ledger technologies, giving rise to blockchain-based networks.”

US Regulation of Crypto Remains Unclear

“Treasury acknowledges that some firms may have had reason to believe that their activities might be subject to regulation and chose not to bring their activities to the attention of regulators. See, e.g., Peter Van Valkenburgh, Coin Center, Framework for Securities Regulation of Cryptocurrencies (Jan. 2016), available at: https://coincenter.org/wp-content/uploads/2016/01/SECFramework2.5.pdf (noting that some cryptocurrencies may ‘functionally resemble securities’ when sold to investors).”

World Leaders Are Eyeing Crypto and Blockchain Technology

“Interest in crypto-assets from a range of financial authorities has increased substantially over the past year, as evidenced in the March 2018 G20 Finance Ministers and Central Bank Governors Communiqué. For the first time, the G20 explicitly addressed crypto-assets, and assigned the Financial Stability Board (FSB) ‘in consultation with other standard-setting bodies, including the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions, and Financial Action Task Force (FATF) to report in July 2018 on their work on crypto-assets.’ The resulting report sets out the metrics that the FSB will use to monitor crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system. The G20 authorities are cognizant of the inherent risks these new assets currently pose for investor protection and anti-money laundering and illicit finance regimes.

Related to these issues, but separate from the focus on crypto-assets, is continuing international interest in the underlying technology. The financial services industry is already developing applications for distributed ledger technology (DLT), including in commodities trading and securities settlement, property registries, and secure, trusted identity products and services, among other use-cases. Some central banks have contemplated the potential for central bank-backed digital currencies, or a tokenized form of a fiat currency that utilizes DLT, asserting that they could potentially help reduce fees, processing times, and operational risk for market participants. Whether such potential benefits could materialize is still highly uncertain. Some central bankers are also considering how to use DLT to conduct interbank payments or employ DLT as a basis for other financial infrastructure, including through Project Ubin at the Monetary Authority of Singapore and Project Jasper at the Bank of Canada. Private consortiums are also experimenting with permissioned distributed ledgers, which operate by allowing only a known set of participants to validate transactions.”

You can check out the full report here.

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