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Consumer protection must be priority for crypto banking, says industry veteran

The main goal of regulation in crypto banking should be protecting and benefiting consumers while creating secure economic environments for businesses to flourish and develop, says a veteran in the industry. 

Joey Garcia, director and head of public affairs, policy and regulation at Xapo Bank, was speaking on the topic of “crypto banking and the future of decentralized finance”.

For him, the regulation of virtual assets and virtual asset service providers has become more complex than necessary. “There are lots of complexities around regulatory developments around the world. And it’s actually a little bit more complex than what the standard of regulation needs to be,” Garcia said.

“My push in a lot of discussions that I have with authorities is that … we really want to create a secure and trustworthy ecosystem for this industry to develop its growth,” he said. 

Garcia described himself as a former specialist consultant to the United Nations who also advises “many regulatory authorities around the world”.

Europe’s first physical cryptocurrency bank based in Gibraltar, Xapo is a digital finance company supplying online banking services based on cryptocurrencies.

Need for consumer protection

For Garcia, crypto exchanges or platforms need to have consumer protection at the forefront, which he says is important not only for the consumers but also for the people who are developing and building the business.

He also pointed to some points of consideration for prospective customers.

“Do they have the best interests of customers at the forefront of their minds? How do they manage conflicts of interest between themselves and the industry? How are your assets protected in an insolvency event?” he said.

Regulators’ requirement for crypto firms or trading platforms to produce proof of reserves is a “fantastic positive step”, Garcia says. But audited financial reports should also be required to get a complete picture. 

Proof of reserves refers to a method of verifying that a trading platform or crypto firm does indeed have 1:1 backing across the digital assets it holds in custody on behalf of its customers.

“The reality is that we don’t know what those reserves are being used for. We don’t know what charges are registered against those reserves. We don’t know how they’re being collateralised. We don’t know if they’re being leveraged. We don’t know what liabilities exist in the same balance sheets of the same entity that’s publishing those proofs,” he said.

Garcia also pointed to the need for governance and the balance between regulation and innovation. 

“There are just too many instances of inexperienced people with no independent checks and balances,” he said. “We could compromise systems and integrity, faulty regulatory oversight to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals.”

Southeast Asia emerging

According to him, emerging markets like Southeast Asia have dominated the global adoption index involving crypto banking.

He said that the growth of the industry would largely depend on “what’s happening in the adoption rate versus what’s happening in the regulatory infrastructure, and solid foundational ecosystems to help build those industries and allow them to grow in the right way.”

For him, innovation change is critical for policymakers, the industry, and regulators. However, a perception by many that law and regulation need to evolve to new technology is “not really correct and certainly not efficient”.

“The thinking has to be to start with a blank slate or whiteboard to bring the public sector and the private sector together and to understand the critical differences in the technology and the businesses that they are trying to regulate,” he said.

Garcia also reckoned that it is “really important” to bring the smartest people in the industry together in a non-adversarial and non-confrontational environment with authorities.

“It’s really important to understand the challenges and to identify the right solutions for the right people,” he said. 

“The technology hasn’t changed. The entry and exit points to those technologies are what’s changed. And that’s where the focus we need to be moving towards,” Garcia said.

He has noticed a development in terms of licensing, defining the standard, and building an element of trust.

However, he also advised consumers to find answers to these questions – “Who are the controllers?”, “Who is your counterpart?”, and “How is it going to be managed in your interests?”

“Let’s look at the advantages of the technology. Let’s look at integration systems. Let’s look at smart and thoughtful regulation. And let’s think about smart and secure entry and exit points to this industry where we can obviously continue to support,” he concluded.



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