Key Highlights
- The regulatory challenge is in how to balance proactively supporting blockchain development while defining the ways in which the regulatory body should protect against downsides
- Traditional approaches in thinking about regulation from a national level will not be enough; national systems need to work well together and move towards harmonization, even if it’s beginning with certain regions
- The OECD works closely with 36 member countries to guide the discussion on regulatory frameworks and implications for blockchain-related management and use cases
Malcolm argues that regulators and government bodies recognize that blockchain technologies pose a great deal of potential for economic growth, but the one question that she is trying to answer is, “how can we support this industry?” From a regulatory standpoint, blockchain can really “make the future” of nations like France, but the technology must be sustainable and compliant with tax law.
In this episode, Angie Lau meets with Caroline Malcolm, Head of the OECD Blockchain Policy Center to discuss how regulators in Europe and across the world are approaching blockchain.
This begs the question: how can regulation be possible when open-source and decentralized technologies have no need for third-party governments? The regulatory environment looks different across countries, and in terms of addressing regulatory issues in the realm of taxes, identity, interoperability, and data privacy, there must be a common approach.
For Malcolm, the OECD is “well-positioned” to do this given that it works across a huge policy spectrum. The organization already works with a number of stakeholder groups including academics and civil society groups in order to gain a well-rounded perspective of how to best draft a regulatory framework. One of the most difficult stakeholder groups to engage with, however, are startup organizations, as they are busy building their products.
Despite the challenges, the OECD Blockchain Policy Center aims to expose member countries to the concrete applications of blockchain and how the technology can be used in a positive way in terms of both economic growth and solving policy solutions, which will take place through the Blockchain Policy Forum in mid-September of this year.
Full Transcript
Can you hear it? Can you feel the buzz, everyone? I’m Angie Lau, editor-in-chief of Forkast.News and we are recording the session live right now in Paris. Forkast.News jumped on a transcontinental flight, from Hong Kong for Paris Blockchain Summit where thousands from around the world have come to share the latest developments and blockchain application industry movements, trending issues, obstacles and solutions. So, we’re at Station F now. This is the biggest start-up campus in the world, and I’m about to moderate a panel on international regulatory cooperation. And on the panel with me will be Caroline Malcolm who leads OECD Blockchain Policy Center, and in fact she joins us here right now. Cause this is how we do it, Caroline. We multi-task, as always. But we do it a greater understanding, but let’s talk about OECD. This is the Organization for Economic Cooperation and Development Organization of 36 countries. It dates back to 1961. Now, for you, pre-millennials this was pre-blockchain, pre-Internet, pre-smartphones pre, pretty much everything. Fast forward to 2019, where in Paris we’re talking about blockchain. And Caroline is here because she heads the OECD Blockchain Policy Center. When did OECD even realize it needed a blockchain policy center? 0:06
Hi Angie and thank you very much for the invitation to be here.
So, the Blockchain Policy Center, the OECD is very, very new development, really launched in January 2019, but it’s something that our members have had an interest in for about five years, initially, as with most people are… Their focus was on cryptocurrencies and the policy implications of those, but really in the last 18 months, we’ve seen a much broader interest in how the underlying technology is going to play out and change both industry and what that means for policy implementation but also the possibility to use blockchain as a tool for governments to achieve their own policy goals.
And they said “Caroline, come on over, head our policy center policy center,” and you said, “Sure, no problem.” How did you find yourself in this space? 2:08
Yeah, look. I’m almost as surprise as everybody else. My background is as a tax lawyer.
Uh oh, we have a tax auditor in the house, we all paid our crypto asset taxes! 2:22
Very pleased to hear that, Angie. Very pleased! The numbers don’t really bear that out, but we can come back to that.
So my background was to look first at digitalization of the economy quite broadly and what the tax implications were of that and then beginning to look more specifically at crypto currencies both their tax treatment issues, how you deal with all those gains that you’ve made and declare them for tax purposes, but also the potential for crypto currencies to be used to avoid tax obligations by shifting assets offshore.
So that was sort of the genesis, then from there, my interest was really sparked and began to then look more generally at blockchain and specifically at blockchain for tax purposes.
And from that, we had the creation of blockchain policy centers, our members after a two-year project which looked at digitalization generally called Going Digital, decided that they wanted to focus really on two issues going forward and one of those was artificial intelligence or the, I guess, big buzzword at the moment, and of course, blockchain and led to the establishment of the Center.
So, for a lot of those who are listening are probably in two camps right now, so one which is Blockchain technology, underlying technology, fantastic. The other group probably like, we are in crypto assets, we have them. This feels really suspicious and scary. This is a crypto-currency that is utilized so that we can remove ourselves from the highly rated… and the system. So, to have this guidance from the system point of view, feels possibly quite adversarial. How would you respond to that suspicion? 3:37
Yeah, so there’s definitely, I guess two angles of the work. On one hand, you have the desire as regulators, and as policy makers to protect from the downsides, and because applications whether they be payment tokens, utility tokens, or security tokens, even. Those are really some of the first applications of the blockchain technology we have seen, stuff that gained the most interest. So looking at how those fit into the traditional financial regulation space, and the risks that they pose now, now whether they be in terms of consumer protection or the need for investor education or simply working out how existing rules can fit on top of this new type of asset, that’s obviously a big focus for many of our members. And at the same time, you have those who recognize that blockchain has a lot of potential in terms of economic growth and are really looking to see, well how can we support this industry? But support an industry which is sustainable, and that’s something which is quite integral. So, viable blockchain development, is something that on the other hand, you have other members are also very interested and I think you really see today in France, the interest of this government, both in terms of protecting and providing regulatory certainty, but I’m also seeing the potential this could be something which really makes the future of France.
But of course, open-source and deregulation and decentralization really suggests that there isn’t a need for a third party like central governments, like institutions, like organizations. Is there a little bit of a disconnect? 5:38
It’s a really significant challenge. So, part of my job is to be the co-chair of the financial stability boards, work on the decentralized FinTech. And part of that work, obviously, a lot of focus on the economic implications, financial stability implications, but also part of that work, looking at these issues around governance, and I think that’s going to be a very interesting issue to explore going forward, particularly if we see a shift to greater and greater permissionless blockchain systems, decentralized autonomous organization, how do you regulate something like that, and how do you even begin to have a discussion with a community who might be quite resistant to the involvement of traditional forces like the government? When you think about the genesis of this technology is almost sort of…
Well, quite frankly, a reaction to the global financial crisis. 6:48
Yes, yeah, exactly, exactly. And so, there’s almost sort of an anarchical aspect to, to the culture, and so seeing how that develops as the technology becomes more mainstream and thinking about how regulators can interact with that community, I think is a really big challenge we have ahead of us.
Have we figured out on a regulatory level, have organizations, have nation-states figured out how to define a token or a crypto asset? Alright, is it a security is it a… What is it? Is it a story of value? What is it? 7:08
There’s a lot of work going on in that space, whether it be through the International Standards Organization, or work in particular bodies, or at the national government level, and the reality is this is a very still-developing technology and there is a lot of fluidity between if we think about having those three categories of payment, asset, or security token and the consumer token, there’s lot of fluidity between those, you often might see a product which doesn’t neatly fall into one or the other. And you also see some hybrid aspects. So things which change over time, but also have elements of both in them, and I think that’s a huge challenge for regulators in terms of thinking about what are the implications and at a very basic level, who has responsibility for regulating these things when you have a much more traditional set-up of institutions, and you might see that some of these things perhaps fall between the gaps, and I think that’s one of the things that we’re going to be talking about with our membership to see… You see some countries making some efforts in that regard, so learning from those experiences, learning from the work of academics and the community in this space to identify rules which will work, not just for today but for the future development of the technology.
And it’s a little bit noisy in the space right now at Paris Blockchain Summit, but it is incredible to see the kind of interest in this space. A lot of the projects, in fact themselves are really trying to figure out how they can comply to the regulatory standards. The unfortunate part is, those standards are still being determined, as we speak. It is though, almost a maturity or a step towards maturity of this space as a lot of projects recognize there needs to be a nod to this space of regulation. Which country, in your view, is going to set the precedent, is perhaps leading the way? Or is it organizations such as OECD or is IOSCO? 8:45
Ok, I think you see, really, that there are some efforts at the national level, but there is a massive recognition that, just addressing these issues at the national level won’t be enough. Talking about asset class, which is highly mobile and as we know, decentralized, and that simply puts pay to a lot of traditional approaches and think, well, I’ll take my approach, and everyone else can do whatever they like. So, whether it’s a matter of coherency, having… Making sure that national systems work well together, or even moving at a certain point, you might see harmonization even if it’s just within certain regions, I think that is going to be something that national regulators are already aware of. That, no matter what they do at their level, they need to be speaking to their counterpart and it’s places like the OECD, like IOSCO that you mentioned, where those conversations need to be take place.
Well, it’s also a level of competition in the same way that if you are a developing or an emerging nation or economy, you kind of want to attract international business. What we’ve seen, as tax havens have done this, little nations have created a really interesting tax environment that has attracted a lot of business that you know, want to benefit off of that versus what’s kind of happening in the blockchain space right now where smaller nations have created very regulation friendly to crypto currencies to crypto assets to blockchain projects, to fundraising and such. Do you think this trend is going to continue or do you think we’re kind of evolving to one international standard? What’s your view? 10:36
I think the tax example is a very, very good one, and I think what we’ve seen with the internet is that the transparency of that the internet brings, means that the ability to hide or take short-term approaches by jurisdictions just isn’t viable if we’re looking if they’re looking to really establish in the industry over the long term and really invest, taking short cuts or being so regulation light that you attract bad actors in the industry. I don’t think that’s, from a business perspective, where any of them are looking to go.
Obviously, there are differences between the regulatory environment between different countries, and I think that’s natural and it reflects differences in the systems and different policy objectives, but I think there is an understanding that there needs to be a sort of minimum common approach in thinking about some of these issues because, just going for a lowest common denominator is going to be the benefit of nobody.
Yeah, no, there’s got to be some guidance. There’s got to be a north star. What is that north star? You think? 12:42
Well, look. It’s certainly something that we’re looking forward to having a discussion with our members about. The OECD works across a huge policy spectrum. So, we’re talking a lot today about finance, but we are looking at the policy implications sort of right across the board, all sorts of different blockchain use cases, but also some of those common issues, which no matter the application of your blockchain, they’re going to come up. So, I’m talking about issues like digital identity, for example, data privacy management of data on a blockchain, monetization and evaluation of data, which is held on a blockchain or referenced on a blockchain, but also more technically issues like, interoperability, for example, and data standards to make sure that those different blockchain protocols can actually talk to each other effectively.
And I think, look I think, the OECD is obviously very well placed to do that.
We do have 36 member countries we work also very closely with, five key partner countries as well. But beyond that, if I think of different areas of our work is… We’ll have sometimes more than 100 jurisdictions around the table discussing these issues. And I think, having a global conversation, and being able to convene that global conversation is something the OECD has shown, it’s very, very good at, and I think we’re going bring that strength into the blockchain space.
Who are you talking to within the community, within the blockchain community that is advising, that you’re consulting? Obviously, this can’t have it in a vacuum between your member states. So, who are you talking with? 14:07
Yeah, So stakeholder engagement is a big part of what we’re making sure we do, whether that be a developer community, whether it be big business or traditional businesses who are looking maybe to transform into the blockchain space or native blockchain companies, but also academics, civil society groups, having a very well-rounded perspective is quite important for us, and I will say that one of the probably most challenging stakeholder groups for us to engage with is the start-up community.
They’re busy building their products. And they don’t necessarily have the time or capacity to engage with standard standing bodies like the OECD to work through, what are the policy challenges they are facing, whether that be policy changes because the regulatory framework is unclear or policy challenges in that there may not be support or there may be barriers to development of the eco-system in their jurisdiction. And that’s something I hope the discussions like this with you, can I guess, really sensitized people in that community that we would very much like to hear with you to speak with you and understand your perspectives on these things because well… It’s important for us to talk to the big end of town, we want to make sure that we have the full picture of what’s going on in this space.
You want to talk to the entire life cycle? 15:50
Exactly, that’s right. Exactly, Angie.
Well congratulations. It is no easy task, to be sure. This just really started January of this year, being 2019. Where do you see this going? What is the stamp that you individually and personally want to put onto this policy standard, as a standard for the future? 15:56
Yeah, look, I think that clarity is extremely important if we want to see blockchain achieve its potential, and sort of the regulatory space at the moment, whether it be the national or international level, tends toward fragmentation. And trying to bring those pieces together, I think is something that we will look towards achieving as quite an important way of making sure that this is a viable industry going forward and we can really hit the potential and perhaps overcome some of the challenges of that we are now seeing from arising where 1.0 as it were. And I guess, trying to sort of learn those lessons from the past and do that through an international framework that brings together the different stakeholders and does something really, I think holistic… So not just focusing on the security token piece or the digital identity piece that looks at these policy issues. I think of it as a tree, where you have all of these different policy issues which bring up and making sure that sort of trees is well trimmed away. There’s not sort of gaps in it and I think that for us is a goal I would like to achieve through the policy center.
One thing that you want to put a check mark, next to that box by the end of this year, what is it? 17:40
Ok, well I should probably take an opportunity to mention the Blockchain Policy Forum. So that’s taking place in September.
We have the first edition last year, so this will be the second case. And what we’d really like to see out of this year’s policy forum is to show policy makers, the reality of blockchain, not blockchain, the theory, but concrete applications of blockchain and their policy implications, but also exposing member countries to the opportunities that blockchain bring and not to see it as this new technology development that brings a host of risks that they have to protect the downside from, but as something which can be a very strong force for good, both in terms of opening up new economic growth, but also in terms of helping perhaps solve some of the policy and difficulties of the past, that’s going be taking place on 12, 13 of September and bring together policy makers but also the industry and academics and having that discussion. That will be a very important part of what we do.
I’ll give you a promise right now. Forkast.News, in service to that forum, we also believe in that transparency and the candidness of those conversations as being critical to understanding blockchain in our world and the impact that it will have. So whatever you need, these are the stories that we are telling as well. So, absolutely and I thank you for spending the time that you have with us! I tell you, people are are lining up right now to talk to Caroline but I’m just holding them off at bay, but thank you, Caroline. Caroline Malcolm here, head of OECD Blockchain Policy Center. Thanks to you all for listening. We’re going to be launching our beta site soon and many of you have been waiting patiently for our debut. Thank you very much, if you have not yet signed up, do it right now! www.forkast.news and be among the first, as they say, to stay tuned. Until next time, I’m Angie Lau. 18:57