We are often asked how the Global DCA is able to bring together and achieve agreement amongst such a broad-based and diverse membership base when crafting standards, designing educational offerings and – in particular – when developing policy positions. The answer is that we start from a point of ‘Guiding Principles’ which help bring diverse viewpoints around the table to synthesize an organizational perspective. Our five ‘Guiding Principles’ are outlined below:
The Global DCA believes strongly in the concept of balanced regulation – regulation which balances the need for innovation in the industry with the need to protect consumers, stakeholders and the general public.
We believe that blockchain and digital assets are a transformative technology that will fundamentally shift the global financial sector. Digital assets are not just another fintech or technology that we can view through the narrow scope of financial sector regulation. But given their transformative nature and the evolution of this space must be viewed through the following four lenses:
Economic Growth / Job Creation
Financial Sector Evolution / Global Positioning in the Digital Era
Sustainability – Environmental as well as financial inclusion, access to finance and other social outcomes
By taking a holistic approach to understanding digital assets, we believe national jurisdictions may most appropriately devise policies, structure legal and regulatory frameworks and properly position themselves in the global digital economy.
So what is the correct legal and regulatory approach to digital assets? This will vary by jurisdiction, but generally, the Global DCA believes in a right-sized approach to government regulation complemented by a credible and robust system of self-regulation. This combination of regulation + self-regulation will allow greater overall regulatory coverage for the industry and individual jurisdictions and will help to strike the balance between the need for innovation and consumer protection.
This industry, more than any in recent memory is best suited to self-regulation as:
- RAPID EVOLUTION – We are dealing with a rapidly evolving industry which requires a swift and nimble approach to the regulation.
HIGHLY TECHNICAL – This industry is highly technical and requires significant expertise that is even difficult to find / maintain / retain in the private sector – let alone the public sector.
NEED FOR PROXIMITY – Further, the combination of rapid evolution and required expertise to effectively regulate necessitates a high degree of proximity – such as that found in self-regulatory regimes – to the digital asset industry. Given the swiftness with which innovation is being undertaken in this space – an expert removed from the industry’s knowledge could easily become obsolete in a short period of time.
GLOBAL – Finally, the construct of the digital asset industry very naturally transcends borders. It is truly borderless and global. Given the need for cross-border, global harmonization and engagement to regulate – there is a need for a self-regulatory entity which can more easily follow the flow of transactions.
As such, a self-regulatory approach makes the most sense in terms of providing effective and efficient regulatory coverage for this industry.
Global DCA Policy Positions
Leveraging our ‘Guiding Principles,’ the Global DCA undertakes member and partner association roundtable seminars, engages with stakeholders and considers the public interest in crafting its policy positions. Global DCA policy positions, comment letters, statements and responses are provided below:
Global DCA Request to US SEC for Additional Response Time – Amendments to Exchange Act Rule 3b-16 Regarding the Definition of “Exchange”Renata Szkoda
“Given the brevity of time provided for response (30 days) as well as the importance of this issue, we are deeply concerned that the public comments on the Proposed Rule will lack the number, depth and detail necessary for a fair evaluation of the Proposed Rule. Additionally, such a brief timeline hampers smaller and mid-size firms even more as they lack the critical resources to be able to review and determine the impact on their businesses necessary to respond in any meaningful way. Furthermore, we worry that a rush to judgment would negatively impact the overall effectiveness of a final rule and create unintended consequences damaging to the interests of the United States.” – Global DCA. Read Response Letter
“Under the conceptual framework for financial reporting, the fundamental quantitative characteristics that make accounting information useful are relevance and faithful representation. Accounting information is relevant if it can make a difference in a decision. Faithful representation exists when there is an agreement between accounting information and the economic events that the accounting information purports to represent. It is difficult to conclude that the current accounting standards for digital assets fundamentally meet the objective of relevance and faithful representation for this asset class. Fair value accounting through profit and loss supports the accounting conceptual framework because digital assets are sensitive to market risk and experience market volatility. Fair value accounting is also more relevant, provides more useful information for readers and enhances comparability across entities and industries.” – Global DCA. Click to Read Response Letter
Global DCA Comment Letter to Bank for International Settlement on “Prudential Treatment of Cryptoasset Exposures”Renata Szkoda
“The Committee notes that for cryptoassets that confer direct claims on a pool of traditional assets held in a bankruptcy remote vehicle, a banking institution could set the credit risk exposure of bankruptcy remote assets of the redeemer to zero only if an institution has obtained a legal opinion for all laws relevant to involved parties, including the redeemer, the special purpose vehicle (SPV) and custodian, affirming that relevant courts would recognize underlying assets held in a bankruptcy remote manner as those of the cryptoasset holder. It is difficult to see how a banking institution would be able to meet that burden. It may be more constructive if the Committee were to consider proposing alternative suggestions, that could potentially offer a different standard for credit risk exposure of cryptoassets conferring direct claims on traditional assets held in a bankruptcy remote vehicle.” – Global DCA. Read Response Letter
Global DCA Response to European Financial Reporting Advisory Group on Accounting for Digital Assets and LiabilitiesRenata Szkoda
“Measurement requirements under IAS 38 and IAS 2 are limiting as they were not developed with digital assets in mind; therefore, we recommend considering a separate asset class for digital assets for the purpose of applying these standards. Unlike most commonly known intangible assets (e.g. software, intellectual property, brands), digital assets have some cash-like properties; some are traded in active markets and many can have trading or investment asset attributes. A significant portion of digital assets held would not have a claim on the issuer, therefore would not meet requirements for a financial asset, and yet, they are held generally for investment purposes, are used to pay for services and experience price volatility, which are the main attributes of a financial asset and as such diverge from the concept of an intangible asset under the current standards. The fair value methodology would be much more reflective of the true economical value of the assets or liabilities on balance sheets of entities, which of course translates to more accurate reflection of the entity’s financial position…” – Global DCA. Read Response Letter
“The GDCA strongly believes that regulators should create pathways to safely develop and mature fintechs and emerging firms in the Digital Assets Industry. Government agencies around the world, including here in the U.S., are recognizing that well-constructed regulatory sandboxes can drive innovation, facilitate market entry of firms, improve access to capital, and strengthen competition, among other benefits. Allowing tiered or phased access to Accounts and Services could share some aspects of a sandbox; specifically, by allowing the regulatory requirements to flex along with the size, maturity, and level of risk each applicant poses. The sandbox model is a proven approach to foster inclusion of ‘new’ banks and Fintech firms, allowing for ease of access, and an iterative approach to shaping the rules as the industry evolves. Such an approach would have the benefit of building capacity and expertise about the Digital Assets Industry within the Federal Reserve system, allowing the Board to gain insight into and a closer view of this emerging area.” – Global DCA. Read Response Letter