Name: Digital Assets — Risks, Realities & Evolving Global Policies
Uploaded: 2025-03-19T16:30:07.094Z
Duration: 59 min 56 s
Description: Digital Assets — Risks, Realities & Evolving Global Policies

Transcript for "Digital Assets — Risks, Realities & Evolving Global Policies": Welcome, everyone, to our webinar today on Digital Assets, Risks, Realities, and Evolving Global Policies. I'm really excited to have you with us, whether it's morning, afternoon, or evening where you are, and encourage you throughout the webinar to please put your questions in the Q and A and we'll answer as many of them as we can. So first up, before we get into the questions, let me introduce our panelists. So first up, we have Marianne Webber. So Marianne is head of market and regulatory strategy for digital assets at Standard Chartered Bank, and she leads regulatory engagement and strategic direction across the bank's crypto assets, stablecoins, digital currencies and tokenization projects. So she has fifteen years of experience on regulatory issues, and has been focused on digital assets for the last few years. Before Standard Chartered, she worked for the Financial Conduct Authority, which is The UK regulator. And she supervised banks and asset managers, client money and custody arrangements, as well as authorized equity exchanges. So welcome, Marianne. Next up, we have Matthew Gravelle. He's a senior adviser for digital assets at Forefront Advisers, which is a European political and regulatory intelligence firms. Prior to this, he worked at Kraken, which is a leading, crypto trading platform, and he headed up the policy function for The UK and Asia Pacific. Prior to that, he also worked at Standard Chartered in their regulatory affairs team where he focused on capital markets regulation and digital policy across the bank's global footprint. Welcome, Matthew. And we also have with us Joanna Summers, who is the chief recovery officer at Asset Reality. Asset Reality is a fintech responsible for developing the world's first end to end solution, for asset recovery, investigating crypto fraud, managing and realizing seized assets. Prior to that, Joanna headed the US Marshals Services Asset Forfeiture Division on complex asset units. Her unit, under her leadership, oversaw the custody, management, and disposal of ongoing business and complex financial instruments that were subject to forfeiture, And her team built out the US Marshals Services crypto program starting with the Silk Road Bitcoin seizure. So welcome everyone, and we're very happy to have you with us. So if I could start with you, Marianne, just to set the scene, could you outline, some of the advantages and risks of digital assets when it comes to business finance, before we delve into more detailed discussion? Yeah. Sure. And, thanks for the invite, along today, Catherine. Yeah. So I think the I think the first thing to say is that there are both advantages and risks, to to, to to to digital assets when it comes to illicit finance. It's it's certainly not all bad. I think the the press headlines that we tend to see tend to be somewhat skewed to to the negative, but, there are, I think, pros and cons. I think I think high profile events, such as the recent, Bybit hack do highlight that financial crime, risk related to use of blockchain is is still very much a a prevalent risk, and it's certainly not something that's static. It's something that continuously evolves and something that we need to continuously monitor and and learn from. So I think it's fair to say that illicit finance is is taking taking place, in in this ecosystem. But blockchain analytics have improved quite significantly over the years. Detection has become a lot better, a lot more precise, so I think that does go some way to count for the, you know, fairly high reported cases of crime we see in this space too. I think in terms of advantages, you have full traceability of transactions on a blockchain which you don't have in the traditional finance space. Transactions can be tracked, verified, audited in real time, which offers, I think, real opportunity from an AML, detection perspective. Think on on the negatives, It's the sort of inherent anonymity, pseudonymity, and wallet owners that you get in the ecosystem, which can hamper financial crime investigations too. But increasingly as the years go on, we're getting better and better at mitigating these risks. Some of the some of the techniques that we use at Standard Chartered Bank include, you know, enhanced client due diligence, activity monitoring, screening, wallet screening, and coin assessments as well. So assessing the actual inherent risk related to a particular digital asset before we onboard it into the bank for for use in in some way. So they're some of the key processes and procedures that we we use to to address those risks that, that I've highlighted. So that's very helpful. And I think what we're hearing, Marianne, is that, the majority of crypto, use is legitimate, but there is that is that small proportion that is illicit. So I might circle around to you, Joanna, because clearly with what you do, you have focused very much on that, on that that small piece that is illicit. So based on your experience, either with asset reality or the marshal service, if crypto is being used by criminal networks to move or hold value, can you tell us a little bit more of some of the ways that you can identify that and some of the actions, that that can be taken? Sure. Thanks for having me today, Catherine, and into the institute as well. So overall, there's a great statistic out there from TRM Labs that says 60 percent of cases don't start off with an obvious crypto component, but they end up having crypto in them. So I think what that shows us is criminal networks are leveraging cryptocurrency for a range of illicit activities, whether it's drug trafficking, money laundering, or a fraud scheme like pig butchering. So, law enforcement has several, ways that they can detect and disrupt these activities. First, blockchain analytics. Investigators can trace movements, usually, specialized tools, like, to analyze transaction flows. You can also do connections to known entities. So addresses linked to darknet markets, sanctions individuals, or prior fraud cases. So a good example in The US is we have IC three, which is the Internet crime complaint center, and it's run by the FBI. So pig butchering scams, which are a combo of a romance scam and an investment scam. If you're a US victim and or the crime has a US nexus, you can report through I c three, and then they start tracking those addresses. And then they've got more information on it. So you can help build a case from there. In terms of what actions can be taken, freezing and seizing assets is always an option. Law enforcement can issue freeze orders to exchanges to prevent suspects from moving the funds. And then from there, you wanna seize it. So assets need to be transferred to a law enforcement agency controlled wallet. And then from there, you go through the asset forfeiture process, hold custody, wait until you get a final order of forfeiture or a return order to sell or return the asset. And I think I think other actions that can be taken that are being taken are cooperation with exchanges and regulators. So strengthening public private partnerships, that really helps improve that intelligence sharing and enforcement efforts. No. That sounds really good. So we've spoken about the public and private the need for public and private to work together. So I might come around to you now with a question, Matthew. So the the environment is driven to some extent by policy and regulation. I mean, that sets out the guide rails for what private institutions need to do as well as providing the framework which allows the public sector, so law enforcement and government to take action. You've worked in traditional financial institutions like Standard Chartered Bank and also crypto businesses like Kraken. Based on that experience, what are some of the key considerations that governments and regulators have in mind when they're setting out their position on digital assets and maybe what is the difference between policy and regulation? Yeah. Yeah. No. Thanks thanks for the question, and and thanks for having me. I think Joanna, Joanna and Marianne have done a great job highlighting some of the ongoing risks in this space and some of the mitigating steps that can be taken to well, to mitigate those risks. I think it's fair to say that when it comes to the overall policy approach to digital assets across jurisdictions, really, that risk calculus plays on the mind of everyone, whether it's a political office holder or a regulator. But what they're trading off against that risk, will differ if they're whether they're a political office holder or a regulator. And I think what what certainly I saw in my years talking to both politicians and regulators about sort of the high level promise and then the low level technical details respectively around digital assets is that policy and regulation are not always the same thing. And and the the sort of overall political stance of a jurisdiction towards digital assets may actually differ from the technical rules that it then sets for digital assets. And that can make it quite challenging for a front office person in a ambitious crypto firm or an ambitious TradFi firm looking to, to dabble in crypto to get a read on where it actually makes sense to park business and park investment, because those signals can actually differ. I think I sit here in London. I've been I've been doing policy in London for a long time. There's no better example than The UK for for this when it comes to digital assets, particularly under the last government, but with such hangover into the some hangover into the current government. So the the previous government, which was a conservative or Tory government, was was basically all in on digital assets. They wanted to make The, The UK a global crypto hub. They laid, laid out a fairly ambitious set of regulatory proposals and made you know, basically, had an open door. I've never been in meetings in any other industry like I was with UK Ministers under that conservative government working for a crypto firm that is, you know, sort of at the leading edge both philosophically and in terms of technology. Really positive, really, really friendly meetings about investment doing more jobs and growth. And that government was making a fairly steep trade off between the risk of the industry and also the promise of new technology, innovation, and jobs and growth, and a revenue boost. Problem was that that didn't necessarily carry through to the regulator. I think it is sort of a widely accepted truism that the FCA has been, I think, reasonable, but also hard on digital assets, in the sense that there's been an awful lot of scrutiny, and it hasn't necessarily been an open door for anyone to do whatever they want. Now, again, how that's perceived sort of depends on your position and how the FCA has maybe treated your specific business model. And, again, I worked for a company that was FCA regulated and enjoyed a really good relationship with the FCA. But there was that disconnect between open door for investment, but not if you wanna get regulated. And, actually, you've gotta do these 13 things and invest $7,000,000 in a compliance program before we'll actually regulate you and give you the green light. Again, all fair, I think. But you see that that that that that sort of contrast between policy and regulation may be playing out in different places where regulators are maybe more politically directed, or maybe marching to a more obvious political, drum when it comes to the positions they're making around the industry. I think we're seeing that in some Middle Eastern markets, for example, where I think there's a real sort of play for that hub role for broader geopolitical reasons, reasons related to trade, reasons related to, to to flows of capital and currency. But, but, certainly, it's something that makes it very, very difficult sometimes for a for for a, as I said, a front office person or a strategy person like poor Marianne to figure out, where's actually good for business, and what does the letter of the law say versus what are the sort of ministers saying when it comes to having a roundtable with with with industry which can differ? So I think that's a great question, Marianne. As a global institution, Standard Chartered Bank is required to meet regulatory requirements in multiple different markets around the world. We've heard about the there can be a disconnect between policy and regulation, but also between different regulators in different countries. So how do you how do you manage that complexity as a global business and what do you with that experience, what are your observations on the differences in approach, between different regulators towards digital assets? Yeah. For sure. So we we we we're in a way quite used to dealing with, you know, complex regulatory regimes. We operate in, I think I think it's 60 markets, and across several different business lines, both wholesale and retail. So in a way, we are, in a in a way, we are used to it. I think the difference with digital assets is just the sheer volume of of regulatory publications we see in this space that have to be that have to be managed. And I say I say publications as opposed to regulatory change because in the grand scheme of things, we still have relatively little live regulation, that we have to comply with in this space. It's still, you know, predominantly in the financial crime area, but we are seeing increasing, you know, emerging amounts of regulation in the under the broader conduct umbrella. So things relating to custody, things relating to trading and consumer protection, market abuse, you know, the FCA consulting, I think, will have just just finished their consultation on what a market abuse regime for crypto assets, needs needs to look like. I think, you know, as a as a general starting point, we the the p r we are a UK headquartered bank, so the PRA is our lead regulator. We tend to look to the PRA to sort of set the standard for how we comply with things across the group, and then we we, you know, we adjust in specific markets, for, you know, specific country level country level nuances. I think one thing we're we're mindful of is, you know, leveraging the bank's existing risk management frameworks and compliance processes when it when it comes to digital assets. We don't have kind of stand alone processes just for for digital assets. We very much just see see this as as another asset class. So utilizing that full kind of end to end, regulatory change process from kind of your your advocacy through to your impact assessment then through to your implementation, we are we are leveraging the bank's existing processes for that. The challenge comes, as I said, with the with the sheer volume. So resources are pretty are pretty stretched to make sure that we can can address can address all of that. So it's, it's a significant, challenge, and I think something that that we also have to do is we have to think pretty pretty holistically about this. I think it's one thing, for example, doing, doing due diligence on, let's say, crypto players, and we have, you know, we have very enhanced due diligence when it comes to banking crypto players. But with the trends that we see, more and more traditional clients are becoming exposed to digital assets, you know, more and more, financial institutions, more and more corporates who are, you know, bringing Bitcoin onto their their balance sheet because let's say let's say, under a Reebok, for example, that's selling digital trainers, in in web three. Like, they they are holding these things, you know, in their treasury now. So the types of clients that we're traditionally dealing with are becoming more and more exposed to digital assets, which presents some quite interesting and novel, compliance issues that we have to work through. So, Marianne, that's, that's a really interesting observation that companies are holding crypto in their treasuries, which suggests there's a level of comfort and maturity within various different corporates. There was a time when perhaps there was a reluctance in financial institutions, so maybe using Standard Chartered Bank as an example where there was that concern about the risks that digital assets presented. Have you and your team been involved in helping increase that understanding of what are the risks, what are the realities? If so, is there any advice that you could share on what worked effectively? So we may, you know, we may have people in our audience who are those internal advocates for crypto or looking to looking to help their stakeholders, have that, you know, balanced and data focused approach. So what did you have to go through that journey? And if so, what worked for you? What did you find effective? Yeah. That's that's that's a really good question. I think I think firm traditional firms are cautious in this space, and I think they're they're right to be cautious. We're cautious. Right? We we're doing a fair bit in this space, but we we we have been cautious. There are there are nuanced and novel risks that traditional firms aren't historically used to dealing with. So that, you know, that should give that should give a firm reason to to pause and and consider this. Nonetheless, we do have we do have ambitions in this to be to be a leader in this space. And I think we're lucky in that we've had we've had support from the very top of the house from the beginning. Like, our our first foray into digital assets was as far back as 2016 when the bank made an investment in Ripple, and we've seen a continuously evolved and enhanced our our risk management, directly in parallel with our with our business ambitions. I think there's a few specific things I think we've we've done which have helped, gain that traction internally and help gain that support to to keep the momentum going. I think a key thing is the is the education. We've had we've had a partnership with Oxford University for about four years now. We've put around 300 people, through their blockchain strategy course, and we're we're targeting another 200 this year. So we've put quite significant investment into that. And that has obviously, one, brought everyone up to speed, and and and we've we've been, mindful to roll that out across the first line, second line, and and third line. We we do have dedicated digital asset folk in our internal audit function as well. So we've we've got we've, we've rolled that out across the organization. And the other thing it's been important for is giving our regulators the comfort that we we are competent, in this. We are capable of of of of playing in this space, and it's a really tangible way to, I think, demonstrate that. So the education, I think, is really key. I think another thing that we've done that's been key to getting that support, we've we've been intentional about having a very lean central digital assets team. That's that's the team that that I'm in. We're only actually three people out of an organization of 86,000, so very, very small. And what we've done, we've kind of decentralized the expertise. So rather than a central team trying to steer everything in terms of product launches and designing of standards and everything else, we've put that out into the business and functions. And it it it ensures then there's that there's that buy in, within the business lines and within the functions to firstly understand digital assets and help and help grow it sort of locally from their from their business line. I think in in the long run, we see we see digital assets as just as just BAU. You know, this week, there won't be a need for a central digital assets team hopefully within a few years because it will just be part and parcel of what the bank what the bank does. So so decentralizing that and making sure you're not concentrating knowledge in just one part of the organization, I think, has been has been an important factor as well. No. I think that's really valuable, and I can definitely see why that capacity building across businesses and products has many advantages. Like, firstly, from a resource perspective, there's only so much that a a central team of experts can do. But more importantly, they they then able to integrate that knowledge and apply it kinda all day every day in what they're doing and have that buy in, rather than it still being attached as an add on. I'm excited at the possibility that it's, that it's fully integrated and doesn't have to be in a separate a separate column all by itself. I think that's I think that's fantastic progress. So circling circling back to the the conversation of policy and regulation, Joanna, I have a question for you. We're talking about different, different jurisdictions and different policies. And obviously, one that's, attracting a lot of attention at the moment is The United States. Statements coming out about crypto. We had an executive order, issued in, I think it was January about strengthening American leadership in digital financial technology, a stock of a a Bitcoin reserve. Can you tell us a little bit more about what you think the implications on the crypto landscape are of the the current administration and its position on digital assets? And if you can share anything about this crypto reserve made of seized assets and what that might mean as well. I think a lot of people have those questions. Sure. So I think overall, we're headed towards a more balanced approach to regulation. One that kind of makes sense in this country without stifling innovation. So this administration is shifting away from that enforcement driven strategy. And I think overall, it's going to help just to legitimize cryptocurrency here more. It's integrating it more into traditional finance. And, overall, I expect to see greater use of digital assets and blockchain technology because of it. So president Trump has issued a working group on digital asset markets, and it's for that exact reason to have a clear focus on regulatory improvement. So the SEC, which is similar to the FCA, they've relaunched the SEC's crypto task force, and we already see them interacting with the public and issuing guidance. Earlier this month, the SEC stated meme coins are not considered securities. They're going to be considered speculative collectibles. Similarly, we've seen the office of the comptroller of the currency come out with statements. They had a big milestone just last week where they said national banks and federal savings associations can engage with cryptocurrency. Basically, they were saying you can go ahead and custody digital assets without prior approval from us in many cases. And that was a bit of a convoluted process where you had to get supervisory non objection, and submit a bunch of paperwork. So great to see that fall off. And then also the, OCC said, you know, you can participate in blockchain, networks. It's permissible aligning with traditional finance, really, the digital asset space being aligned with traditional finance. And notably, they can use stablecoins for payment activities. So I think as these previous policies are revoked, the working group is going to play, like, a really critical role in shaping our new framework for digital assets, including stablecoins. And I think it's important, and Marianne touched on this too, like, to have everyone rowing in the same direction. Like, don't have one policy here, one policy there, kind of get everyone at the table and have everyone talking about the same thing and sending out the same messaging. So it's not, a fractured, message to the public. In terms of the second EO you mentioned regarding the strategic Bitcoin reserve and the digital asset stockpile, Those are really interesting. The strategic Bitcoin reserve will be forfeited currency. So when cases are seized, they are not owned by the government yet. They're still being adjudicated. So what we're talking about is criminal and civil forfeiture cases that do not have victims. So victim cases will not be impacted. Those, those will still be paid out separately. So in cases where there's no victim, and the government prevails in the case, that Bitcoin will now be available to move into the strategic Bitcoin reserve. And then the same with the digital asset stockpile. We're talking about department of treasury cases, so not department of justice, just the agencies that are on the department of treasury side of the house for now, and moving other asset types to a digital asset stockpile. So I think that there's just going to be a lot going on with this administration. And I think the impact overall for the crypto landscape is positive and I think we'll receive more guidance. No. That's super positive that there's already been guidance issued because the question of what is a security when it comes to crypto is always one that focuses a lot of attention. You mentioned, that there's a distinction between, siege seizures or forfeitures where there's a victim and ones where there is not a victim. Can you explain a little bit more about, situate, like maybe give some examples or help us understand what are ones with victims and what are ones without victims and why is it important to draw that distinction? Yeah. So the asset forfeiture fund and asset forfeiture programs in general, they provide restitution to victims of crime. So whatever the type of crime is, there's a process to submit a petition for remission, to to to claim that you were a victim of a crime and to be reimbursed. We can see that in fraud scams, for example, like I mentioned, pig butchering. You know, if if those funds are recovered, then you could receive a portion, if not all of them back. You know, it doesn't happen as often as we would like, but it does happen. And the point of asset forfeiture programs is to really make sure that you're giving back to those victims of those crimes and giving back to society. So if it's not a victim's case, those asset forfeiture funds are used to fund other public initiatives, whether that's, building drug rehabilitation centers, whether that's public schooling, roads, you know, improving American infrastructure, other countries' infrastructure, or providing training to law enforcement. Those are the types of uses of the asset forfeiture fund. That's really helpful. And, Matthew, given that you are in Europe, what is the, the EU and UK perspective on the, the, you know, the new policies and the guidance that's coming out of The United States? What what do you see as being the implications or other other markets and jurisdictions if you if you wanna comment on those? Yeah. We'll we'll keep it to crypto and not things like tariffs and NATO. How's that? Let's do that. Otherwise, we'll be here for hours. We'll be here for a while. But, no, as I mean, it is it's kind of an important point because as with all things in, in the Transatlantic space right now, there's a lot of reaction to what's going on in Washington, and policy is kind of being updated and adapted on the fly, across files. I think on on digital assets specifically, I mean, look. If you look at what's coming out of the, the senate and is likely to come out of the house on stablecoins, And if you look at what we're supposed to get on a market structure bill, essentially, towards the end of the year, we're not talking about a bonfire regulation. We're talking about sensible, sensible approach to regulation. I think what Joanna called a recalibration or moving back to normal as opposed to regulation by enforcement. So I guess the point is The US isn't going to open the floodgates to do whatever you want. They're gonna build a sensible regulatory framework now. And there is a sensible regulatory framework already live in the EU. And The UK is building a sensible regulatory framework, and they're all gonna have their differences, and they're all gonna be not quite like for like on key details. And that's gonna create a lot of work for compliance people. But I think the point is there's not gonna need to be this sort of adaptation or reaction in the sense of, well, Europe's gotta deregulate now to keep up with The US. I think if anything, it's a return to normal in terms of building sensible rules for crypto assets across the Transatlantic space. That being said, and if I was, you know, trying to sound if I was still in house and I was trying to sound smart internally, I'd say there's probably two files to watch where I think The US is, internally, I'd say there's probably two files to watch where I think The US is, and what The US is up to is gonna have an impact on European regulation, both in The UK and EU, albeit in different ways. So the first is on stablecoins. And I think what's really interesting here is that that first EO that you talked about, one of the really interesting early lines in that EO is that it explicitly ties dollar backed stablecoins to the broader politics and policy around dollar dominance and dollar hegemony globally and as a tool of American power. That's a really interesting connection. It's the first time we've that's always kind of lurking in the background. It's the first time we've seen that link so explicitly and so politically. And so that means your USDCs and your USDTs are now part of the overall toolkit in the minds of this White House around how you actually maintain and project American, dollar dominance so USD dominance, and hegemony. Why does that matter? Well, because it's actually kind of tricky for USD stablecoins in the EU and has the potential to get kinda tricky for USD stablecoins in The UK. Mica, which is the the comprehensive crypto assets framework framework that's already gone live in the EU, does a couple of funny things to dollar stablecoins. 1, it puts caps on their total circulation where they're used for payments. So it makes it kinda hard to achieve scale. This is sort of a fear of dollarization and a a sort of payments and monetary sovereignty kind of argument, behind this. But there are a number of different thresholds and number of different ways where it's actually kinda tough to actually achieve scale. You have to stay below caps if you're a dollar backed if you're non EU currency. So it's not just dollar, but non EU currency, I e dollar backed stablecoin. So that's an interesting piece. Another one is they explicitly tie whether you're able to be traded on EU exchanges to your compliance status, your authorization status. There's been a lot of noise in the crypto press recently about Tether being delisted, by a large number of EU authorized exchanges, including American firms that happen to be operating in the EU as part of their path to compliance under the European rules. Tether is not the only one. PayUSD is also, also incites. It's not, again, about dollars. It's about whether or not they're authorized stablecoins separately. But there's this connectivity between, between the compliance regime and some of these pressures that, you know, we've been advising clients could become a political flashpoint, around, around US EU relations given this tie into dollar politics more generally. The UK has got some decisions to do here. There's a consultation paper coming out, on stable coins in the next few weeks from the FCA, potentially from the Bank of England too. They're gonna have to outline their approach to non UK stablecoins, including dollar stablecoins. Look. That's the bulk of the market. That's what people wanna hold. That's what people are trading. How do you treat them? And will there be a delisting pressure, and will there be some kind of political flashpoint around that? I think that's something to watch, both how the EU adapts or adjust its rules. It's already said positive things about Circle's business model, interestingly, or and what The UK builds. So stablecoins is the first one I'd watch as potentially having spillover effect, and potentially being quite interesting both in terms of rule adaptation and broader politics. And then the second one is around capital. So, hugely relevant for a bank like Standard Chartered Bank, but any global bank really that's that's trying to touch not just crypto assets, but tokenized assets in any form, including stable coins, but also tokenized securities like bonds. The Basel committee has come out with a pretty onerous framework and onerous in two ways. It's tough work from a process point of view, and it's expensive from a capital point of view and have to invest a lot of person hours into trying to unlock capital treatments you can live with. And when it comes to things like unbacked crypto assets, kinda hard to unlock a capital treatment you can live with. You just kinda have to find workarounds operationally and commercially. Point is, it's a big clunky thing that represents the fact that most central bankers don't really want crypto risk to leak into the banking sector and have tried to make it expensive and hard for banks to take on too much risk. That set of international standards is due to be implemented globally by the January 1. It's gonna slip. It's not gonna happen. And the reason it's not gonna happen is not entirely, but increasingly due to uncertainty about whether or not The US is gonna implement it at all or how they're gonna implement it or whether they're gonna reopen the standards. This is, I should say, not just around Basel crypto. This is true of global banking standards more generally. Obviously, this White House is not a great fan of multilateralism, and international commitments. So I think that's something that is playing into the sort of bank capital space as well. But, but, yeah, I think it's a watch and brief. The EU is implementing a transitional approach It already shows some deviations from Basel. The UK has to make up its mind on how much it deviates from those international standards, and The US has to play its hand here. I think we are not advising clients right now that the international standards themselves are gonna get ripped up or reopened. We think what's more likely is that different parts of the world just implement them in different ways. But, you know, this is not an arcane point about capital and treasury functions at banks. This is kind of the whole ballgame from the point of view whether or not this goes really mainstream and really live in banking or where this remains a bit of sort of an edge thing that banks can dip their toes in but not really fully adopt. Because when it comes to consuming balance sheet, you know, that's a big blocker. That's a big blocker. If it's too expensive, banks can't do it no matter how much their clients are jumping up and down. So it's one to watch, and I think it's it's it's gonna be very political. And as I said, over the course of the year, we should find out more about how implementation is taking shape, whether the international standards are gonna get ripped up or adapted locally, and how they're gonna get ripped up. My bet is for things like Bitcoin and ETH, it stays tough. For unbacked crypto assets, it stays tough. But for things like tokenized bonds and for things like stable coins, it gets easier, and banks can do a lot more. And that is, that's one to watch because that's, as I said, that's that's a real game changer when banks get involved. So, Matt, I have a few follow-up questions for you, and then I might circle around to Joanna and Marianne and see if you have any, anything you'd like to add because we've covered a lot of a lot of very interesting points there, Matthew. My first one is we've spoken about USDC and USDT as being US dollar stablecoins, meaning they are designed to maintain parity. One USDC equals 1 US dollar. There were historically perhaps some question marks about USDT and what the assets were that backed it, perhaps lack of transparency over that and there has been progress whether enough or not, I will not necessarily comment on that today. But there's a distinction between those assets and traditional financial instruments because they're not issued, say, by the US government. I'm interested in whether you have any observations on the implications of that. Secondly, if The US is seeing the significance of stablecoins for its influence through economic tools of statecraft. What considerations have been given within The UK or the EU to issuing their own stablecoins or other jurisdictions if you, if you wanna comment? Yeah. I'll maybe I'll take the the second one first, which is I think there's a big debate, going on right now about the need for and how you build demand for or liquidity around non USD stablecoins. I think, you know, there is, part of it is regulatory uncertainty. I think, you know, there if you look at sort of GBP, for example, the fourth largest traded currency globally, but there isn't sort of not a drop in the bucket when it comes to the stablecoin market. Well, part of that is because people don't know what it is in The UK, from a regulatory point of view and can't figure out, again, path to compliance and path to to sort of commercial viability, given that uncertainty. So I think there is, an important sort of conversation to be had. Look. There are there are efforts and there are, you know, Circle has launched a euro denominated stablecoin, for example, in addition to launching USDC, in in The EU and compliant with Mika. So there is a, an EU version of USDC, so to speak, although it's fully fungible with the global version. But I think that that sort of conversation around other jurisdictions launching a, or players in other jurisdictions launch launching a stable coin that sort of takes on the relative value and weight and importance of their local currencies. Because, yeah, USD is dominant, but it's not the only traded currency. It's not the only currency in which contracts are written or settlements are are, are settled or, sorry, if, transactions are settled. So there are other currencies where presumably there's a use case, and it kinda makes sense to if you're trying to make sure that your local corporates aren't exposed to too much FX risk and they wanna settle in euro or they wanna settle in Danish kroner or they wanna settle, Japanese yen, that they can do so in a tokenized world as well as in sort of the real world, particularly on the wholesale side. So I think that conversation will continue. The role of a CBDC, which would be a central bank sort of a corollary to a stablecoin, I think, continues to be a bit more obvious on this wholesale settlement side than it does in the retail side to a lot of jurisdictions for this reason. Particularly, I think we're seeing the idea of a retail sort of you would hold digital, you would hold a sort of a a digital euro in your wallet on your phone and go pay for coffee with it. The use case around that seems to be declining. The banks are still pushing back on it. But on the wholesale side, that use of a central bank backed, settlement assets in a tokenized space, I think that that that is still sort of seems viable, and there's a path forward on that. UK, the debate's very similar. Obviously, CBDC, particularly for retail, is dead in The US politically. So, I think, again, what you use and what you use it for, whether it has to be USD or whether you can build something local, whether it's Stablecoin or CBDC is still very much live. I would say the trend line is pushing Stablecoin over CBDC. But, again, whether you get non USD versions of it for local markets, really interesting question both commercially and also from a compliance point of view. I forgot your first question. The first question was, the first question was about stablecoins. So they're they're US dollar linked, but they're not issued by, like, by a government. So they're not central bank digital currencies, for example. And are there any implications of that that you wanna highlight? Yes. So so sorry about that. No. I I think it's related to the comments I was just making about sort of that commercial viable path, and who issues what and what kind of money gets used for what kind of purpose, whether it's buying something at a point of sale or settling a wholesale transaction. I think, you know, stablecoins when you step back and this is kind of what regulators are going through right now is they kinda look like lots of different things. Right? I mean, they kinda look like money market funds, especially if they're sort of fully backed one to one with basically HQLA, you know, treasuries and cash. They kinda look like mark money market funds. They kinda look like eMoney, which is a European regulatory construct, but sort of cash on demand, sort of digital money, sort of, sort of type product. They kinda look like narrow banks, so non leveraged, non fractional reserve banks, kinda just look like funds in other respects. You know, you can kind of imagine applying a bunch of different regulatory frameworks to them. For the same reason, you can kind of imagine them edging out a bunch of different players in the TradFi space. You could kinda you know, they they could play the role of collateral that, that sort of, you know, or re application that's often, popular in in, around money market funds. To the extent that regulation allows yield to be paid on them, you can imagine them starting to supplant deposits, particularly retail deposits at large commercial banks. Certainly, there's the payments use case, where, where they could replace cash. And, you know, there are these sort of regulatory questions hovering over which ones of these do you enable and which ones of these do you sort of lock down? And to get to the, I think, I guess, the sort of sharp edged question, and then who actually will be issuing them? Will it be sort of subsidiaries of commercial banks? Will it be new entrants and nonbanks? Will it be, will it be someone else? You know, I think it will be fintechs. Obviously, this arguably, this all started with Facebook, social media platform talking about launching its own currency. You know, I think the answer is probably a little bit all of the above, because there are these different use cases, and I'm not sure that it's entirely clear which one is going to stick and which one's gonna be fully enabled by regulation, whether that's rules around, again, paying yield, rules around, distribution and redemption, rules around wholesale use cases, rules around whether or not they have access to central bank reserves and whether or not they're actually free of credit risk for that reason. You know, I think all of these kinds of things are very much in play. I think what we still see mostly and what's particularly privileged, I think, by the, by the Mika framework is there's still just an awful lot of secondary market trading going on around them. Not so much as speculation, but it's on and off ramps, into other crypto asset activities and activities in sort of digitally native ecosystems. That, you know, is not going away, and it's actually a very unique feature of all these things. We talk about them as being used as collateral or as deposits or as payments. The typically, the things you use for, for collateral or deposits or payments aren't also being traded in open secondary markets and highly liquid and subject to price discovery and arbitrage and, as you said, occasional depegging. That's a very strange feature of these things that they are potentially usable in all these ways, but also going to be heavily regulated when it comes to secondary market activity as well. And so how that plays in and how the intermediaries that allow that trading take place also enable holders of stablecoins to execute redemption rights, for example, to basically cash cash out whenever they want. What's the role of a major exchange like my my former employer, Kraken, in you wanting to sort of exit your Tether bank? You're not going directly to Tether as you would to the bank. If you wanna cash out your deposit, you're going by a Kraken. That's funny. And regulation's got a story to tell around that too. So long winded answer, but I think the sort of the the TLDR, as they say in crypto, is a lot of different use cases, that are potential. The secondary market trading one is still very much there, and regulation's got something to say, about all of them in terms of shaping what's viable and who gets edged out and who ends up being an issuer. I think that's all really valuable knowledge to understand the overall environment. Linking this back then to illicit finance, there are some indications that terrorist networks, for example, are increasingly using some of these stable coins particularly like USDT rather than Bitcoin. 1 of the suggestions is the reason for that is the lack of volatility or lower volatility compared compared to something like Bitcoin. So if you wanna, you know, you're wanting to collect, collect crypto, and use it to to buy things, you want something that is a a more stable currency. So there's, definitely some of these policies have quite, quite tangible implications. We did have some questions, submitted ahead of the ahead of the webinar. I wanna make sure that we have time to cover those. So what I might do is, Joanna, we've talked a lot about, The US, The UK, the EU, and how there's a lot of conversation about, about policies or commercial implications, their prudential implications, obviously, illicit finance implications. But those are these are some of the more advanced jurisdictions in terms of their digital assets, compliance frameworks and policies. So with the work that you do, what what's happening in other countries, like and what needs to happen for them to to also be effective in taking action against digital assets that have been used for illicit purposes? Because, as with the traditional financial system, if you have one weak point, then that, you know, that brings, you know, potential illicit proceeds or it means that ecosystem can be used for for laundering, for, you know, breaking that follow the money trail. So So can you talk to us a little bit about other jurisdictions and, you know, what what needs to be done and what is being done to to help them, fulfill their responsibilities too? Sure. So it's actually one of the things we focus on at Asset Reality is helping countries get that compliance, like, where it needs to be. But just taking a step back, if you look at some of the UNODC statistics, it's estimated that less than 1% of criminal assets are recovered globally. So that means trillions of dollars are currently remaining in the hands of criminals. And that is in part due to, you know, countries that don't have that developed framework in place allowing some of these actions to happen. So we're working at Asset Reality to bridge that gap, in global asset forfeiture by providing both a platform to help seize, manage, and liquidate assets and also provide training and education to countries, help them develop those types of programs, help them develop asset forfeiture programs and asset management units. So that's a little bit of what happens on the on the private sector side, but what's being done is a combo of, public support and private sector support. So on the public sector side, you've got the financial action task force, FATF, and they set international AML standards, including the travel rule. So, you know, mandating identifying parties in crypto transactions. And all these countries are subject to FATF evaluations. And FATF comes in to see, are they complying with what they state the international standards are? Do they have a system for managing seized assets? Do they have a process in place for AML compliance and and KYC? And, you know, what we find is we get the phone call from a lot of these countries before their FATF assessment stating, hey. We you know, we're working on it, but we still need a little bit of help. Could you come in and help us develop the program further so that we can pass our FADF assessment? And what happens if they don't is they can be gray listed, and then that means they will not have as much funding for their country. So it affects the country's funding. And behind the scenes, some countries have told us if that happens, it's up to a 10% hit to their economy. So I think that's a pretty big stick to wield that, you know, you don't want to have your funding taken away from you. So there's that part of it. There's also public private partnerships for training. The World Bank, UNODC, They all provide asset forfeiture training and assistance for developing asset forfeiture programs. We've worked with both of them. And I know that's that's, like, a bit doom and gloom, like threatening to take away everyone's funding. So to end that question on, like, a more positive note, what I really like to see is that some of these countries, they are trying really hard to increase their their framework for this, and they are trying to work with the more established countries, the EUs, the UKs out there, and they're trying to learn from those other countries. And one good example of that is Interpol's silver notice. So the silver notice supports mutual legal assistance between countries tracking seized assets. So it's specifically used to locate illicit financial gains, including cryptocurrency, and it facilitates that cross border asset recovery to ensure that illicit funds don't remain in offshore accounts just sitting there. So it's really nice to see jurisdictions coordinating on asset recovery and having people who work in that space come together and see what other countries are doing and what lessons they could take away to implement into their own country as well. So that is a very nice leading, Joanna, to one of our open to the whole panel questions. So to maximize, the benefits that digital assets can offer while minimizing the risks, what are one or two actions that the public sector needs to take or could take and the private sector? So I'm gonna go around our panel, maybe one private sector point one one, one public one private sector point. Marianne, I'll start with you. Yeah. Sure. I think I'm gonna I'm gonna come back to the point Matthew was making earlier about the, the, alignment between the sort of government level visions that are, put out versus the regulatory actions that are taken. I completely, you know, observe that point and and and live that point in my day to day job, seeing that disconnect between, the the the top level vision and and the practicalities at the regulatory level. So I think that the the the more we can close that gap, the better. I I wanna share one anecdote from, from Asia, which I think is a really great example of of of, you know, closing the gap on this, and it it comes from Hong Kong. So I think it was either 2023 or 2024. Hong Kong is obviously, making great strides in in building its digital asset ecosystem and, you know, to realize that ambition, it it understands the importance of, banks being able to, I guess, participate in this space and more importantly being able to provide traditional banking services to to crypto players and and crypto exposed firms. So one thing the HKMA did, which we haven't seen from any other regulator that I'm aware of, is the HKMA actually turning around and telling banks, you you need to be onboarding these players, unless you have extremely good grounds to not onboard them. You need to be, you you you need to be doing so, which is, you know, that that's that was a certainly a positive move because that has been a blocker for the growth of the ecosystem in some markets, I would say, including in The UK. So seeing a seeing a central bank come out and actually encouraging banks to to do that and it's saying that, you know, a blanket, policy against that will no longer be acceptable is is is a good example of that. So yeah. So I think closing that gap and making sure that the the policy and the regulatory levels are as aligned as possible is probably, the most, the most that that would be very beneficial. No. That's great. And I think the, you know, the position by the HKMA or the there's not just the, practical implement implications of that, but it's also setting out a very clear intent that that perhaps shifts the perceptions within financial institutions towards, well, this is something that we we need to embrace and engage with. Joanna, I know you touched on this already, but but one one action for the public sector, one action for the private sector, what would you what would you wanna see them do, to to maximize the benefits and, mitigate the risks? Yeah. I think for both, you could just say training and education. You know, education to understanding digital assets, the seizure process, in terms of law enforcement, just learning how to investigate cases, including cryptocurrency and and how to handle and secure the assets. And then, education, on the public sector side on different types of attacks, smart contract vulnerabilities, fraud schemes like pig butchering, like, what are the signs that you're about to be the victim of a pig butchering scam. So I think just the general understanding what it is you're investing in and doing your own research to make sure you understand that investment. No. I think that's a great response because, understanding is the best way to separate perceptions of risk from actual risk. Matthew, onto you. One one action for the public sector, one action for the private sector. You have your, you know, you have your magic wand here. What would you want to see them do? So I think for the public sector, there's still there's sometimes still a tendency for regulators to respond to perceived risks, perceived threats, perceived narratives around crypto rather than sort of empirically driven regulation, if that makes sense. And so I'd regulate the risk, which is there, particularly conduct risk, but not regulate the narrative necessarily. I think one place this has been done well is around De Fi. De Fi is weird. De Fi is hard. Most places aren't regulating De Fi yet because they can't get basic terminology down, much less a proper perimeter or an appropriate regulatory approach. That's good. That's right. And the real reason that's right is because it's still very, very small. If it was very, very big, I think urgency would probably demand some kind of response to let's call it conduct risk, risk of fraud, things like that. But it's still a relatively small part of the crypto space, which is still a relatively small part of global finance. And so I think that approach is right, and that's a good example of it. I think a place going back to stable coins where it's been done not so well is is around stable coins. I think Libra out of Facebook spooked central bankers, and they never caught never quite gotten over it. And the, disruptive but also, you know, pro consumer potential of this product set is being held back by, I think, some understandable but maybe not firmly grounded reservations. An example I'll give about is, the Bank of England's initial set of proposals around systemic payment stablecoins in The UK. Basically, when it gets big enough to compete with established payments rails. We're pretty tough. You know? You have to have central bank reserves, but, no, you can't get the yield on those reserves. I mean, pretty tough from a sort of business model point of view. Pretty hard to commercialize. And the bank admitted that those rules wouldn't capture any stable coins that existed. So what are we doing here? And what are we doing spending all these time on regulatory proposals for something that doesn't exist? So, you know, risk not perception. And I think we're getting there, ties into Joanna's point around education. And then, on the private sector, this is a tougher one because I've seen it I've I've worked in the space from both both sort of the TradFi side and and also the crypto native side. And I think in terms of the messaging, particularly to the political level, but also just when we're having conferences and talking to each other, crypto's really gotta figure out whether it's here to break stuff or whether it wants to integrate with TradFi. And I know there'd be different players with different strategies. Let's be honest. Some are gonna wanna do one more than the other. But I think the reality is even the most break stuff crypto firm needs banking rails because they need people to be able to trade crypto using their bank cards. And, and I think that can be kinda confusing sometimes to policymakers. Is okay. Are you here to do something better? Are you here to bank the unbanked? Well, how many unbanked clients does a major crypto asset exchange really have? And how are they getting onboarded if they don't have a bank account? I mean, that's an interesting question. So are you really here to provide an alternative financial system, or is this really about doing some things better and actually integrating in interesting ways with the institutions who, by the way, can make this thing explode, and make everybody a little bit richer. So, you know, what is you know, what's actually the the strategy and the narrative here? Because I think, I think that can be a little bit tiresome, frankly, for officials to wade through. Am I if if supporting this sector, am I supporting something new, or am I just supporting something better? Obviously, it's a little bit of both, but I think the story around that nest needs to get a little bit cleaner, and some of the sort of hyperbole needs to be toned down so that we actually figure out what kind of system and what kind of cooperation. Fraud's a great example. Both sides need each other to cooperate better so that everyone gets better outcomes. And that's that's that that would be my advice to industry, with my old industry association chair hat on. Well, I I think what we're hearing is that perhaps not all crypto is equal and different participants may have different objectives. We've only got a few minutes left. I have one other question for all of our panelists. It's going to be a quick fire round. What is one development that you see coming this year? It could be product services, clients, threats, tools, techniques. One quick answer from each panelist, and I'm going to let our panelists step in first or second or third as they see fit. I'm happy to go. So and this is this is one that was near and dear to our hearts at Kraken I did a lot of work on, but it's staking. Staking's fun because it's actually kinda new. It's actually something there's a lot of stuff in crypto that just sort of replicates some of the risks and activities of traditional finance, but with new vehicles for doing it and sometimes with intermediaries, sometimes without. Staking's actually weird and new, and really is about sort of how people participate in the underlying protocols and also how they can, you know, earn coupons or yield off, off off of doing so. And The UK is gonna be a bit of a first mover in this space. It's gonna propose a new set of rules. I think that's gonna be really interesting for setting the setting the the scene, so to speak, for whether the EU does anything. Staking is not covered in Mica. It's still largely unregulated in the EU. How The US treats staking, and whether, for example, this actually takes off and becomes more than sort of a a retail curiosity, but a way, for example, for, you know, a corporate treasurer or a hedge fund to buy some ETH and not just trade it in secondary markets and not just speculate on it, but also unlock some passive income around it. Yeah. I think I think is potentially a a really interesting thing and being able to unlock that passive income through regulated rails. The UK is gonna have a first mover advantage here, which it doesn't enjoy in many other parts of the crypto space. So this is awesome, I think. The UK taking the lead on on staking, which would be, super interesting. Joanna, one thing that you see coming up this year, what would what would that be? Yeah. I agree with what Matthew is saying. I mean, definitely staking. Our country has decided we're not going to focus on CBDCs right now, retail or wholesale. We haven't addressed them. But I I think just seeing more policies in general, I think we'll start issuing policies and taking a regulatory stance as a whole. So I that's really what I see. And it's gonna be interesting to see as the strategic Bitcoin reserve is rolled out, how that's implemented. So I think that's gonna be one to watch as well. So I think in The US, more regulatory clarity and more specific direction and detail is on its way for this year. That that definitely seems to be the indication so far. Marianne, one thing that you're seeing coming up this year. Yeah. I mean, I'm probably a little biased, but I think despite what what Matthew spoken about about the, you know, potentially, problematic prudential rules for banks who want to play in this space, I think notwithstanding that, we will see increased participation from banks in these markets. I think the the change the changes in The US, the repeal of SAB one two one, and the removal of the the OCC guidance is is gonna be really significant in, in in, triggering banks to to to to want to participate here and removing quite significant barriers. So, I think that's one thing we will see this year. No. I think that's fantastic and definitely, definitely positive to hear that within financial institutions, crypto is now kind of part of the BAU compliance program and controls rather than being in its own separate category again. So I think we are pretty much at the end of our webinar. I want to say thank you to all of our panelists, Joanna, Matthew, and Marianne. Lots of insights there, lots of experience to share, and thank you to our audience for joining us. Thank you to those who submitted questions in advance. I know there were a couple of questions in the Q and A that we didn't get to, but certainly happy to consider those for, to respond to those in upcoming written content or a future webinar. Thank you all. Thank you.