The Development of a Regulated Secondary Market in Digital Assets
By Prof. Syren Johnstone on May 17, 2019
HONG KONG — 14 May 2019 — A new independent research paper has been published examining the challenges faced by regulators as they create a framework for overseeing cryptocurrency exchanges. Written by Syren Johnstone from the Faculty of Law at the University of Hong Kong, it suggests development should be model-neutral and remain focused on the oversight of functions and establishing accountability for wrongdoing. The paper calls for an effective public-private partnership to help balance investor protection more effectively with the need to encourage innovation.
The paper is part of research funded by OAX Foundation designed to examine the current state and best future direction for regulation of the digital asset industry. Johnstone suggests an approach that regulators could take to support the evolution of the industry into a mature part of the financial system and wider economy, without stifling the potential benefits that blockchain can bring to society.
Regulators around the world are putting the secondary market in digital assets under ever closer scrutiny. Last year, the Hong Kong Securities and Futures Commission announced plans for crypto trading firms to participate in its regulatory sandbox as a potential pathway towards future regulation as licensed intermediaries. In the UK, the Financial Conduct Authority reportedly significantly increased the number of investigations made into crypto firms over the course of 2018. In this environment, Johnstone argues that applying existing regulatory frameworks is not sufficient to protect consumers and facilitate industry development, while also preventing abusive uses of the technology.
Amanda Liu, General Manager at OAX Foundation, said, “For it to move to the next stage of its evolution, the industry needs an open and honest debate about regulation. This is why we have supported Professor Johnstone’s research, which clearly lays out the issues at stake as well as a possible way forward.”
Syren Johnstone, Executive Director of the LLM in Compliance & Regulation programme in the Faculty of Law at the University of Hong Kong, said, “Connecting regulatory oversight to the form of an exchange is an accident of history. Progress in regulating the secondary market has had mixed results in part due to applying regulatory standards developed in a pre-blockchain era. Regulators should continue to promote a public-private partnership to balance investor protection with the need to encourage innovation. This will mean that the benefits the technology can bring to society and the wider economy have a better prospect of realization.”
The full paper, “Requisites for Development of a Regulated Secondary Market in Digital Assets”, can be downloaded here: https://security-eu.mimecast.com/ttpwp#/enrollment?key=50de77d6-f5a6-491f-9775-8ae1c7a844bf
The previous paper in the series, “Regulating cryptographic consensus technology: Oxymoron or Necessity?”, can is also available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3264556
Alternatively, for summary versions of the papers, please email [email protected]
About OAX Foundation
OAX Foundation Limited is a Hong Kong-based entity set up to develop and promote digital asset trading for the mainstream. It aims to build a sustainable digital asset industry based on principles of openness, transparency, and strong governance.
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