Ripple, the payment processing system based on blockchain technology, is a giant in the crypto space and as such has a strong focus on the current and future state of digital payments. Since its inception in 2012, Ripple has branched out using the XRP token to build an offering that now includes cross-border payments and CBDC management solutions.
Finextra sat down with two of Ripple’s top policy experts to reflect on the past and upcoming year of crypto politics in the UK, EU and US in 2023.
This was explained by Susan Friedman, Head of Global Public Policy, and Andrew Whitworth, Policy Director, EMEA
Ripple has been heavily focused on political movements in both the UK and EU, especially given the seismic changes the industry is facing.
In November 2022, both Friedman and Whitworth helped produce Ripple’s “Block by Block” report, which explores the potential of a regulatory framework that would position the UK as a global crypto hub by fostering innovation and growth, encouraging investment and Education is encouraged to both the public and policy makers about the benefits and risks of the sector.
The report came out just as the FTX saga was beginning to unfold, an event that set an even darker tone for the crypto industry in the final months of 2022.
How Will FTX Collapse Affect Crypto Regulation?
Whitworth does not see it as likely that the FTX situation will have a significant long-term impact on current efforts or timelines to regulate crypto assets, but he does acknowledge that the collapse is being discussed at high levels of government in most jurisdictions.
While the negative attention isn’t ideal, Friedman states that the FTX matter should be viewed somewhat separately from the broader “crypto winter” as this specific situation appears to be a clear case of fraud. This should be distinguished from other significant events in the crypto space in 2022, such as the sinking of Celsius, Voyager, and Three Arrows Capital. “To the extent that all of these events are occurring simultaneously and leading to more focus and action towards regulation, I think it can actually be seen as an industry benefit. Hopefully we’ll get to a point where those situations are less common and far apart.”
While situations like these are never “good,” Whitworth believes they could have certain positive effects. For example, regulators and industry will work at the same pace.
“Before, there was a feeling that the industry was racing and the regulators didn’t understand or couldn’t keep up and felt very uncomfortable. However, what has been shown is that both sides are on the same page and we can develop a more constructive relationship to achieve a better, more stable outcome. This might sound a little paradoxical – the idea that something like FTX happens and you end up with a better relationship. But I think and hope that’s true.”
Friedman adds that if FTX had been registered in the EU, under the upcoming Crypto Asset Markets (MiCA) rules, the mixing of funds and perhaps some of the consequences we have seen would have been prevented in the first place.
More importantly, however, the larger the number of jurisdictions implementing regulatory frameworks for the industry, the greater the likelihood of “regulatori arbitrage”.
“As more governments roll out crypto regulation,” she explains, “it will single out the jurisdictions that don’t meet this new baseline regulation and encourage them to up their game. This means that there is a need for global coherence and standards for this type of activity as well.”
Whitworth adds that in an ideal world, regulatory arbitrage should not be the way countries police space, but regulation should be approached as a race to the top. “Jurisdictions like the Bahamas should try to consolidate their position by creating a sound regulatory environment.”
He expects jurisdictions to start proactively coordinating and collaborating on this.
“In October last year, the FSB published its consultation on crypto assets, stablecoins and the regulatory framework, which is very important and welcome. While we would not expect to see common international standards to the same extent as in the banking sector, the more different jurisdictions can coordinate on regulatory frameworks, the more likely they will be able to rely on each other.”
Friedman continues, “The real problem is that there aren’t enough jurisdictions that have acted. That is slowly changing, but a global safety net is no longer enough today.”
What can we expect in terms of crypto regulation in the UK, EU and US in 2023?
Whitworth explains that the talk about regulation has evolved significantly over the past 12 months, with political figures such as PM, Rishi Sunak and Chief Treasury Secretary, John Glen publicly calling for the UK to become a global hub for crypto. While the current crypto winter, exacerbated by the FTX collapse, is influencing the discussion, advances in the space continue.
“The UK doesn’t really have the luxury of deciding whether it wants to propose a regulatory framework or whether it thinks crypto is something it should or shouldn’t be concerned with,” argues Whitworth. “Other countries are already doing this and if the UK is to continue to be at the forefront of financial innovation it needs to at least catch up.”
Friedman adds: “The time is now and the UK cannot just sit on the sidelines while policies are being developed.”
Many UK leaders have called for the establishment of a crypto framework for the UK, with Minister Andrew Griffiths recently stating during a Finance Committee hearing that “given the events in FTX and others that we’ve seen in 2022, a Part of creating that future is creating that future, finding the right regulation – not having no regulation or baking it in completely as if this was already an established market and fact, but finding the right balance.”
Consideration of the UK Financial Services and Markets Bill (FSMB) by members of the House of Lords begins on January 25, 2023. The FSMB seeks sweeping changes to how financial services are regulated in the country, including the establishment of a regime to regulate stablecoins.
Despite those comments, Griffiths also stated that it would be “foolish to say it would all be done by the end of 2023.”
During the same Finance Committee meeting, Griffiths added that the European Union’s MiCA regulation “is a good experiment” that “covers some but not all of our areas [UK] would strive to cover.”
The Crypto Assets Markets Regulation lays out the EU’s plans to align crypto rules across the region and gives affected companies around 18 months to implement the rules. MEPs were due to vote on the regulation in February this year, but after translation delays and questions about the strength of the rules under FTX, the vote was pushed back to April.
Whitworth remains hopeful for progress as “we are moving into the more technical, concrete, final state of the policy process when it comes to discussions of the actual regulatory framework and the policy framework.”
From a US perspective, Friedman is hopeful that 2023 will bring progress in crypto regulation, but she expects less dramatic developments on the other side of the pond. “Notwithstanding our push and lawmakers’ discussions about the need for swift action, the legislative processes in these countries are as they are and it may just take a little longer to come to a concrete conclusion.”
Central Bank Digital Currencies: Are They As Promising As Ever?
Ripple, which now offers a platform solution for CBDC management, is predictably optimistic on the subject.
Griffiths also mentioned progress on the CBDC front during the finance committee meeting earlier this month, stating, “I want us to put in place a regime – and that’s part of the FSM Act – for the large-scale use of stablecoins for payments. The government will present a consultation document on how to regulate the crypto asset sector in general, but also, together with the Bank of England, on what we should do in relation to a sovereign digital currency.”
This comment aligns with Whitworth’s stance that in the same way that crypto regulation has evolved from a potential political discussion to issues of technical implementation challenges, seeing governments picking apart the finer details of technology requirements shows progress. “While we don’t know what the end product will be like in the future, the fact that it is moving from central banks into the public or into the political sphere at least shows that there is a desire to make it happen. Who knows what will come out of this political process, but progress is a pretty big step for these jurisdictions.”
Friedman adds that while CBDC will likely look very different in some non-G20 countries than in countries like the UK or the EU, she says all signs are that we will see continued discussions on the political front if not even pilot projects.
Friedman concludes, “I think the UK government in particular has been very strong on public-private engagement and we look forward to continuing to engage and participate in these discussions with them.”