What Regulators Think at OECD and Why it Matters; R3’s Regulatory Head Says Adoption Relies on Governments
What are the rules? For most blockchain companies and projects, the complex landscape of regulation and policy creates business risk, which impacts not only innovation but also ultimately, mainstream adoption.
But at OECD’s second Global Blockchain Policy Forum, regulators are increasingly becoming aware of the need for concerted efforts at every government and agency levels.
Forkast.News is in Paris, and Editor-in-Chief Angie Lau is helping lead the conversation among ministers, senior decision-makers, government leaders as they join experts, academics and blockchain industry leaders. We will be bringing candid conversations, insights and context to the discussions and comments from the very people who have the power to impact blockchain innovation.
More than 1700 attendees from around the world are discussing everything from preventing anti-money laundering and terror financing to developments of public sector use of blockchain. We are providing a deeper dive into what OECD members are discussing today, the conversations that seed the regulatory policies being formed, and how it will shape blockchain application and adoption in future.
- OECD Global Blockchain Policy Forum 2019 kicks off with France Minister of the Economy and Finance Bruno Le Maire declaring support for blockchain, while specifically targeting Facebook’s Libra project as a threat to monetary sovereignty of nations
- Isabelle Corbett, R3 Head of Regulatory Affairs and Public Sector Partnership,s says she’s assessing the “tone” of regulators at OECD to understand what is being viewed positively, and what is being viewed with caution, but is not discouraged by Le Maire’s remarks
- Corbett says gov tech is a way governments are applying tokenization from land registries to vehicle registrations
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Angie Lau: Welcome to this special edition at the OECD Global Blockchain Policy Forum right here in Paris. I'm Forkast.News Editor-in-Chief, Angie Lau. This is really where thought leaders in blockchain industry sit alongside policymakers and regulators from around the world and really trying to figure out, and the word is figure out, what the initiatives in innovation are going to come as a result of these conversations that are happening right here in Paris.
It's a pleasure for me to introduce to you right now Isabelle Corbett. She is with R3. She is the Head of Regulatory Affairs and Public Sector Partnerships at R3. So really, your vision and your leadership at R3, as you talk to policymakers and regulators, are really critical to blockchain adoption, from not only an enterprise point of view, but also a government point of view. So welcome, Isabelle.
What are some of the key things that we should be watching out, listening for, coming out of the OECD?
Isabelle Corbett: You know, this is an agenda that is filled with some really interesting topics, and they are all of the ones that we are discussing most. I would say, from my perspective in this in this forum, we're talking about gov tech and we're talking about regulation. And both of those things are what I spend all day, every day thinking about and, learning about, and trying to educate about. So when we're talking about what we expect to see or what we should be looking for, I would say one thing that's really important is the tone that we're picking up from regulators about how technology should be treated, how technology and cryptocurrency are different. How is something in between like tokens should be treated? And then the other piece I would say that we're looking for is the gov tech element. So how should governments be thinking of this? What should they be doing? Where should they be using blockchain?
Angie Lau: All right. Let's pick up on the tone, because Bruno Lemaire really kicked things off. Initially very encouraging, very supportive of technology.
I think there is a recognition really amongst all nations who have shown up here at OECD that there needs to be direct engagement. And then came the very, I would say, aggressive tone that came out about this threat to monetary sovereignty of states as a result of Facebook.
That's the kind of tone that seems to contradict even itself in terms of the regard to the technology. How are you perceiving it?
Isabelle Corbett: You know, I perceive it the same way as you did. I mean, there is a very, very clear tone about Libra, but I am not discouraged by that. In fact, I think that a lot of people are applauding Libra in that it's getting a clear reaction. And in a world where we're talking about new technology and regulators have been somewhat hesitant to speak out about it over the past couple of years. But now we're seeing them be a little more clear about support of technology. But there has been a lot of desire to have more clarity. And so what is Libra getting? Very, very clear reactions. And I think that that is a huge benefit to them. And I think that it is somewhat clarifying for the industry who is looking at crypto assets generally.
Angie Lau: I don't think it's an accident that Facebook is setting up its team in Geneva in very innovative regulatory space of Switzerland. I was just there the past couple of days. That ecosystem seems to be really wanting to innovate for the potential of technology like Libra.
Is that in conflict with the rest of the EU? Is that in conflict with other policy makers in other jurisdictions -- as people try to almost jockey to figure out how much they're going to embrace the technology and how much are they going to set up guideposts?
Isabelle Corbett: So I think that FINMA has been remarkably clear and thorough in the work that they've done. I think that there is a lot of benefit to what they've said and what they've put out there. Switzerland is a great place for innovation for a lot of reasons, especially in the financial world. We've seen that Zug was out there years ago saying we're inviting innovation here. There are innovation hubs in Switzerland, but that's really a little bit more about cryptocurrencies.
Zooming out, I would say when you're talking about crypto assets, which is a much, much broader topic, you're seeing a lot of input, a lot of studies, lots of reports coming out, asking for input on crypto assets and how they should be treated. You know, we saw that the FCA has put out a lot on the topic. They asked for comments and put out a report. Those are really helpful insights that we're getting, because when you're talking about crypto assets, you're talking about a world of tokenizing anything.
Isabelle Corbett: And when I say anything that sounds kind of scary, it makes it sound like it could be, your dog at home. No, I don't mean that. I mean, tokenizing real estate. I mean tokenizing gold, tokenizing securities. Those are all things that we're doing at R3. And the advantage of that is you can move them. You can move them quickly. You can, in real estate, have partial ownership. And so you start to get a lot of the benefits of blockchain when you tokenize assets, you move them quickly.
Angie Lau: That is certainly one of the key innovations right now in this in this space. You’re seeing it firsthand, tokenization. How are you working with governments and how are you working with jurisdictions as you talk about another value proposition, possibly security- backed? I mean, how do you define it legally? How is it as a financial vehicle? What are these conversations like at R3 as you engage governments?
Isabelle Corbett: So we engage with governments since the beginning. We knew when we were looking at the technology to be used in regulated environments that regulators would be absolutely key there. So we have been in conversations with regulators around the world. In my first year at R3, I went to the home countries of every one of our members and then we had about 50. So a lot of stamps on my passport.
And the conversations have really been, how are we using blockchain? How are we using its tokens as assets, and then how can they use it? And so we're starting to see more and more interest from regulators on how they can actually use the same things, the same tools that we're using in the private sector, in the public sector.
Angie Lau: So you're talking about not only talking to them about the rules, you're also talking to them about: Hey, how do you, as your own enterprise entity, also use tokenization in doing the work of governments?
Isabelle Corbett: Yes, absolutely. Tokenization is one part of the technology, one way that it can be used. It's not the only way, though. So we talked to governments about land registry. We have a couple land registry is being built on Corda vehicle registration. A lot of supply chain. So there was a PoC in the UK government on food safety and supply chain. So when you start looking at that, and then you take that same supply chain, and you look at things like medication or you look at things like parts for aircraft from the Department of Defense, when they're procuring those goods, they want to know that they are the goods that they expect to be receiving and they meet the quality standards before they put them in their aircraft and deploy that aircraft. The tokenization piece is important, but registries, supply chain, payments, a lot of intergovernmental payments like taxes.
Angie Lau: We heard today the very strong words and obviously the very big interest amongst all of these nations is the fact that how do we also participate in getting the fair value back to states via taxes? How are you engaging in those taxation questions?
Isabelle Corbett: So the taxation questions are largely focused on cryptocurrency. And that's understandable, right? Because you're seeing a lot of value moving hands in the cryptocurrency market. But when you're talking about taxes on other use cases… So, for example, I mentioned land registry. When you transfer land between parties -- that's a tax event. Someone is paying taxes because they're purchasing that real property. That piece to me is interesting and it is essentially ready today because we're looking at these products that are moving land, that are transacting on land. If you add a regulator node for the tax authorities so they can see that transaction and know immediately what the tax liability is of it -- they can also receive that tax payment on ledger and that that is a really powerful element.
Angie Lau: So when it comes to R3, part of the enterprise solution that you're offering to corporates is really from a private point of view. And so let's talk about that, because it seems to be that we've talked about this dynamic between public blockchains and private blockchains, and now it's almost evolving past that. Can you tell us about some of the conversations that you've had, even amongst the blockchain community as how do you regard the private blockchain as it interacts with public decentralized blockchains?
Isabelle Corbett: So I would say what's important about what we're calling private here is identity, right? Identity is absolutely core. You need to know who is doing what on the platform. You need to know who you're transacting with. And that's really to be in a regulated space and also to be appealing to regulators. For the public sector to look at deploying technology, it's unrealistic to think and we've already heard that at least twice today, that that will be on a public permission list ledger.
Angie Lau: And so do you think that adoption will come from this hybrid, from this almost interoperability?
Isabelle Corbett: I think that interoperability is something that will happen, and it will happen because the market will demand it. The question is just who facilitates it?
Angie Lau: How is it being regarded in R3?
We have from the beginning said that interoperability was going to be important because there will not be one ledger for all. That has been recognized from the beginning. I think that that's actually recognized universally. I've not heard anyone say we think that there's only going to be one because they're all different. So Corda, our platform, is designed uniquely in several ways. Most importantly, it's how it shares data. We have limited data sharing, which makes it scalable. That also means that you maintain privacy in your data. And so I think that the fact that Corda looks different from others is a very clear reason why there will be multiple chains that ultimately are successful. But the users of those chains may actually be the same. Someone might use Corda for something, someone could use different platforms, other use cases. They're going to want that interoperability.
Angie Lau: And in fact, you just announced working with MasterCard on this. Tell us a little bit more about that project as I really see this as one example of a real-world application that could potentially really change how things are done.
Isabelle Corbett: Sure. Absolutely. We are really excited to announce that. And the reason that I think that is so important is twofold. One is that it's cross-border payments, and that's a huge opportunity for blockchain. MasterCard, a huge card player, getting into blockchain, looking to solve this, using this new technology, is amazing. The other piece is -- we're still largely associated with banks and being a financial services institution, but we are far beyond that. Every time that we have an announcement that is outside of traditional banking, that's really exciting for us because Corda is being used across industries.
Angie Lau: All right. Give us some examples. You have about 20 Corda apps in production right now in terms of how it's being utilized and which industries are we seeing them in.
Isabelle Corbett: We are seeing these applications go live in insurance. We have several in insurance. Healthcare is also emerging, which is closely related in some ways. We have supply chain, which is huge. I think that's huge in government. That's also going to be huge in the private sector. Telco, oil and gas, government. I mean, it's a broad-use platform.
Angie Lau: And so that means you're going to be very busy because here in OECD, it really seems that we're just the tip of the iceberg here. We're talking about taxes, we're talking about sovereignty, issues of monetary policy. And now you're talking about different industries, insurance, health. Those have completely different regulatory bodies. How do you think this industry must think about even engaging those conversations as we go down sub-layer to different regulatory bodies that regulate specific industries?
Isabelle Corbett: I think it's simple. I think that the relevant regulators have to be in the conversations from the beginning. That has always been our approach. Regulators who want to know more, who want to get involved -- we always invite them to reach out to us. We will do our best to reach out to them, too. But when I speak about technology and what it's going to take to get applications live, I say there's the technology, there's the business, and there's the regulatory aspect. And all three of those have to be thought through and addressed.
Angie Lau: Right now all we're seeing is the industry and the business. Are the regulators from health, from insurance, from telecommunications. Are they starting to engage?
Isabelle Corbett: They are. Yes. So I just came from a telecom conference in Budapest earlier this week, and there were a lot of government bodies there. There were a lot of regulators. There is certainly more and more attention being paid by those regulators in particular industries. And we'll continue to see an uptick, you know, as blockchain becomes more and more of an undeniable reality. We get more and more inbound.
Angie Lau: I know that you probably speak from a very specific point of view at R3. But for future blockchain startups or even the startups that exist in the industry today, how much should they be thinking about these regulatory conversations and are they critical to sustainability?
Isabelle Corbett: They are critical. I think that it is important to think about as you go to design a product, you need to be thinking what are the regulatory implications of this? That should be one of your first questions. Because if what you're building requires registration, will be regulated, you need to be in there with regulators to make sure that your business is viable.
Angie Lau: Last but not least, tell me what you hope to learn from the OECD as you engage in these workshops and forums. What do you think the most critical thing that will all take away from these conversations will be in Paris?
Isabelle Corbett: I think that what's most critical for us is exactly what we started this conversation with, which is about tone. What is the tone? What is the message? What is being viewed positively? What is being looked at with caution and what we hear? A strong note you likely read this morning. All of these conversations are kind of on a continuum. So that tone really matters. So far, we've seen a very positive tone towards blockchain.
Angie Lau: Isabelle, a pleasure. Thank so much.