Regulation

Regulatory Tracker: Blockchain At The State Level, FinTech Sandboxes Go Global — Maybe

Blockchain at the State Level

In legislative news, a bipartisan bill is making its way through Congress that urges government agencies to look into using blockchain to help store and secure data.

The bill — known as Colorado SB 18-086 and titled “Cyber Coding Cryptology For State Records” — calls upon several entities and individuals, including the state’s chief information security officer and the director of the governor’s office of information technology with annual reviews tied to blockchain readiness and safeguarding “state records containing trusted sensitive and confidential information from criminal, unauthorized or inadvertent manipulation or theft.”

In an interview with PYMNTS via written exchange, Sen. Angela Williams, a sponsor of the bill, said that “in the age of cyberattacks, customer information being compromised with large companies (Equifax) and compromise of election data, my constituents have requested an improved system (beyond passwords and normal protocols) to secure sensitive and private information.

“Government departments handle sensitive and private information of the people of Colorado. It is crucial to design a framework to identify solutions to prevent unauthorized external disclosures, protect privacy, confidentiality and prevent inadvertent releases of information,” she said.

Against that backdrop, she cited the immutability of data and the nonrepudiation of actors through the use of cryptology as important areas of information protection offered by cryptology.

The initial goals of the legislation, she said are “to identify, assess and mitigate threats to state government and develop and maintain in a series of metrics to identify, assess and monitor each public agency data system for platform descriptions, vulnerabilities, risks and liabilities.”

The threats are significant, she said, noting that as estimated last year, the cybersecurity threat to governments included 6 to 8 million attempted attacks per day.

Beyond data security, she noted there are several other use cases, such as property ownership and incorporation, networked public services and owning and transferring financial assets.

Asked about a timeframe for implementation, the senator told PYMNTS that “ideally, I would like to see the Office of Information Technology begin its work in the fall of 2018. The bill is still being heard in Senate committees and will need to be heard in the House of Representatives and then to the governor for signature.”

 

Beyond the States

The regulatory landscape was global in scope this past week as lawmakers looked to take steps in creating a far-flung blueprint that would define a FinTech “sandbox.”

On a country-by-country and region-by-region basis, early last week Britain’s Financial Conduct Authority (FCA) said there are plans to create a “global testing bed” for new apps geared toward finance.

That U.K. initiative was announced by Chris Woolard, the FCA director of strategy and competition, and he stated at a conference in London that “later this week, we start work with interested regulators, including colleagues across Europe, the U.S. and Far East, on a blueprint. There’s real momentum behind this, and we hope that before long, the ambition of a global sandbox will be a reality.”

The European Union (EU) has fired its own shot across the bow for a sandbox, with an eye on the fact that Britain is leaving the EU via Brexit. There’s a draft document circulating that would help the FinTech sector grow through crowdfunding and blockchain standardization, with a push beyond the 13-member countries that have signed on to sandboxes.

Numerous financial websites quoted Bruno LeMaire, via an article written by him for Numerama, stating that France is looking at legislation that will allow for initial coin offerings that come with a formal stamp of approval.  The ultimate goal is to make France a hub for those offerings, legitimizing the cryptocurrency arena. In the letter, he stated, “Blockchain will offer new opportunities to our startups” as well.

Also on the world stage — amid financial regulation coordination — the Financial Stability Board (FSB) is training its gaze on working with existing rules rather than new ones. Outgoing Chair Mark Carney said in a letter to the G20 that “as its work to fix the fault lines that caused the financial crisis draws to a close, the FSB is increasingly pivoting away from design of new policy initiatives toward dynamic implementation and rigorous evaluation of the effects of the agreed G20 reforms.” The review of rules in place “will consider FSB transparency, consultation, mechanisms for setting its strategic agenda and how to ensure discipline and efficiency in the FSB’s member-led groups charged with analysis and policy development, implementation and evaluation.”

In reference to cryptocurrencies, regulation from the FSB remains in abeyance. Said Carney, “the FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time. The market continues to evolve rapidly, however, and this initial assessment could change if crypto-assets were to become significantly more widely used or interconnected with the core of the regulated financial system.”

 

And in the U.S.

Separately, Ripple’s CEO has said regulators and stakeholders in the cryptocurrency industry should be able to work together. In an interview with CNBC, CEO Brad Garlinghouse said, “The blockchain revolution is happening from within the system — it’s not going to happen from outside the system.” Those comments come against the backdrop where the Securities and Exchange Commission said digital exchanges will have to register with the agency, an announcement that, of course, comes after subpoenas were sent to scores of companies.

Regulatory eyes are trained on data and Facebook, of course, as critics are stating the social media giant needs regulatory oversight after news hit that Cambridge Analytica, the political consulting firm that was employed by the Trump campaign, gained access to 50 million users as far back as four years ago. Facebook has come under fire amid a slew of headlines centered on fake news and ads. Its CEO, Mark Zuckerberg, has faced calls to testify before Congress.

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