Ripple, the payments settlement system run on blockchain technology is a behemoth within the crypto space, and as such, is keenly focused on the current and future state of digital payments. Since its naissance in 2012, Ripple, utilising the XRP token has
branched out to build an offering that now includes cross-border payments and CBDC management solutions.
Finextra sat down with two of Ripple’s senior policy experts to consider the year that was, and the year ahead, for crypto policy across the UK, EU, and US in 2023.
Susan Friedman, head of global public policy, and Andrew Whitworth, policy director, EMEA, explained that
Ripple has been deeply focused on policy movements both in the UK and EU, particularly given the seismic changes endured by the industry.
In November 2022, both Friedman and Whitworth were involved in producing Ripple’s ‘Block by Block’
report, which examines the potential of a regulatory framework that would position the UK as a global crypto hub, by fostering innovation and growth, encouraging investment, and educating both the public and policymakers on the sector’s benefits and risks.
The report was released just as the FTX saga was beginning to unfold, an event which draped an even darker tone over the last few months of 2022 for the crypto industry.
How will the collapse of FTX impact crypto regulation?
Whitworth does not view the FTX situation as likely to bear a significant long-term impact on current efforts or timelines around regulation of crypto assets, however, he acknowledges that the collapse is being discussed at high government levels across
While the negative attention isn’t ideal, Friedman explains that the FTX matter should be viewed as somewhat separate from the wider ‘crypto winter’, as this specific situation is seemingly a clear cut case of fraud. This should be distinguished from other
significant events in the crypto space during 2022, such as the downfall of Celsius, Voyager, and Three Arrows Capital. “To the extent that all of these events are happening at the same time and causing more focus and action toward regulation, I think that
it can even be seen as benefitting the industry. Hopefully we will get to a point where these situations will become more infrequent and far between.”
While situations like these aren’t ever “good,” Whitworth also believes that they could bring certain beneficial effects. For instance, regulators and industry will begin operating at the same speed.
“Beforehand there was a feeling that the industry was racing ahead and regulators didn't understand or couldn't keep up and were very uncomfortable. What has been seen however, is that both sides are on the same page, and we can develop a more constructive
relationship to reach a better, more stable outcome. That may 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 impending Markets in Crypto Assets (MiCA) rules, the commingling of funds and perhaps some of the fallout we’ve seen may have been prevented in the first instance.
More important, however, is that the greater the number of jurisdictions implementing regulatory frameworks for the industry, the greater the likelihood of “regulatory arbitrage.”
“As more governments implement crypto regulation,” she explains, “it singles out the jurisdictions that don't meet this new baseline regulatory floor, incentivising them to raise their game. This means that there is also a need for global coherence and standards
with respect to this type of activity.”
Whitworth adds that in an ideal world, regulatory arbitrage shouldn’t be the means by which countries supervise the space, rather, regulation should be approached as a race to the top. “Jurisdictions like the Bahamas should be looking to cement their position
by providing a solid regulatory environment.”
He expects that jurisdictions will begin proactively coordinating and cooperating on this.
“In October last year, the
FSB came out with its consultation on crypto-assets, stablecoins, and regulatory frameworks which is very important and welcomed. While we wouldn’t expect to see common international standards to the same degree as those in the banking sector, the more
that different jurisdictions can coordinate on regulatory frameworks, the more likely they will be able to rely on each other.”
Friedman furthers: “The real problem is that there aren’t enough jurisdictions that have acted. That is slowly changing, but there is not enough of a global safety net today.”
What can we expect to see regarding crypto regulation in the UK, EU, and US during 2023?
Whitworth explains that the conversation around regulation has evolved significantly over the past 12 months, with political figures including 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 impacting the conversation, progress in the space continues to plough forward.
“The UK doesn’t really have the luxury of deciding whether it wants to put forward a regulatory framework or whether it thinks crypto is something it should or should not engage with,” Whitworth argues. “Other countries are already doing this, and if the
UK wants to continue to be a leader in financial innovation, it needs to catch up, at the very least.”
Friedman adds: “The time is now, and the UK can't just sit on the sidelines while policies are being developed.”
Many UK leaders have been advocating the establishment of a crypto framework for the UK, with
Minister Andrew Griffiths recently stating during a Treasury Committee hearing, that “given the events in FTX and others that we saw in 2022, part of creating that future is to get the right
regulation—not to have no regulation or to bake it in fully, as if this is already an established market and a fact, but to get that balance right.”
Examination of the UK’s Financial Services and Markets Bill (FSMB) by Members of the House of Lords begins on the 25th of January, 2023. The FSMB seeks to make sweeping changes to regulation of financial services in the country, including the establishment
of a regime to regulate stablecoins.
Despite these comments, Griffiths also stated that it “would be folly to say that all would be done” by the end of 2023.
During the same Treasury Committee meeting, Griffiths added that the European Union’s MiCA regulation “is a good attempt” that “covers some but not all of the areas we [UK] would aspire to cover.”
The Markets in Crypto Assets regulation sets out the EU’s plans to align crypto rules across the region, giving in-scope firms around 18 months to implement the rules. Members of European Parliament were scheduled to vote on the regulation in February of
this year, however, following translation delays and questions around the strength of the rules post-FTX, the vote has been pushed back to April.
Whitworth remains hopeful about progress as “when it comes to actual regulatory framework and policy framework discussions, we're moving into the more technical, concrete, end-state of the policy process.”
Speaking to the US perspective, while Friedman is hopeful that 2023 will deliver progress around crypto regulation, she expects less dramatic developments across the pond. “Notwithstanding our push and legislators’ discussions about the need for rapid action,
legislative processes in these countries is what it is, and it may just take a little bit more time to get to a concrete result.”
Central bank digital currencies: Are they as promising as ever?
Ripple, which now offers a platform solution for CBDC management, is predictably upbeat on the subject.
Griffiths also mentioned progress on the CBDC front during the Treasury Committee meeting earlier this month, stating: “I want to see us establish a regime—and this is within the FSM Bill—for the wholesale use for payment purposes of stablecoins. The Government
will be coming forward with a consultation document about the regulation of the crypto-asset sector in general, but also, in conjunction with the Bank of England, about what we should do about a sovereign digital currency.”
This comment aligns with Whitworth’s stance that in the same way that crypto regulation has progressed from a potential policy discussion into questions of technical challenges around implementation, to seeing governments pulling apart the finer details
of technological requirements, shows progress. “While we don’t know what the final product will look like in the future, the fact that it's moving out of central banks into the public or the political domain, shows at least that there's a desire to make this
happen. Who knows what will come out of this political process, but progress is quite a big step for these jurisdictions.”
Friedman adds that while CBDC is likely to look very different in some non-G20 countries compared to places like the UK or EU, she says that all indications suggest that we’re going to see continued discussions on the policy front if not actual pilots.
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 with them on these issues and participate in those conversations.”