HKU Law Welcomes Ms. Lea-Anne Lee

Welcome to Ms. Lea-Anne Lee, who joins the Faculty of Law as a Senior Lecturer.

Lea-Anne graduated from University College London and obtained her Postgraduate Certificate in Laws at the University of Hong Kong. She was admitted as a solicitor in England and Wales and Hong Kong.

During her extensive private practice with Hogan Lovells, Clifford Chance and Freshfields in London and Hong Kong, she specialised in advising financial institutions on mergers and acquisitions and financial laws and regulations. Her clients included the full spectrum of participants in financial services including retail and investment banks, insurers, asset managers, fund houses, brokers and intermediaries.

Since the Global Financial Crisis in 2008, Lea-Anne undertook various senior management roles in house advising on domestic and cross border legal, compliance and regulatory aspects on restructuring, business controls and risk management for various international financial services operations in Asia Pacific (covering China, Hong Kong, Singapore, Japan, Korea, India, Taiwan, Australia as well as various South East Asian countries), including ABN AMRO, Credit Suisse/UBS and Bank of China (Hong Kong) Limited. She was responsible for navigating regulatory affairs and handling critical and large scale interactions with domestic regulators and international college of supervisors.

At the University of Hong Kong, her main focus of teaching is on financial laws and regulations. She looks forward to sharing her deep experience on the financial industry’s practice and compliance issues.

Douglas Arner et al on Sustainability, Financial Inclusion and Efficiency: A Trilemma or a Trifecta for the Regulation of Digital Finance? (Banking & Finance Law Review)

"Sustainability, Financial Inclusion and Efficiency: A Trilemma or a Trifecta for the Regulation of Digital Finance?"

Zetzsche, Dirk A; Arner, Douglas W; Buckley, Ross P.

Banking & Finance Law Review

Vol. 39, Iss. 3

Published online: August 2023

Abstract: This article argues that the digital transformation of finance is being driven by the quests for (i) efficiency, (ii) financial inclusion, and (iii) sustainability. These in turn are central to regulatory approaches to digital finance. We argue that - rather than a trilemma - the three factors in fact form a mutually reinforcing trifecta which can be supported and reinforced via appropriate policy, regulation and infrastructure. These three factors are necessarily intertwined: financial inclusion underpins long-term oriented economies, and unsustainable outcomes generate numerous risks for finance.

Douglas Arner and team on Regulating Artificial Intelligence in Finance and other Regulated Industries (new book chapter)

"Regulating artificial intelligence in finance and other regulated industries"

Douglas W. Arner, Ross P. Buckley, Dirk A. Zetzsche, Brian W. Tang & Lucien J. van Romburg

in Artificial Intelligence in Finance

Edited by Nydia Remolina & Aurelio Gurrea-Martinez (Edward Elgar Publishing, 14 Apr 2023)

Chapter 12

Abstract: This chapter develops a regulatory framework for understanding and addressing the increasing role of AI in finance, and focuses on human responsibility, the ‘human-in-the-loop’, as central to tackling AI ‘black box’ issues ie the risk that AI results in processes and operations unknown to and uncontrolled by human beings, producing undesirable results for which only the AI is responsible. Part II highlights the risks created by the increased reliance on AI in finance. Part III summarises the regulatory challenges concerning financial services AI and the tools available to address them and highlights the necessity to address the ‘black box’ problem. Part IV presents our solution to the latter problem. Part V concludes suggesting that our framework offers the potential to address ‘black box’ issues in the context of AI in finance but also in any regulated industry.

Douglas Arner, Giuliano Castellano, and Eriks Selga (RPg) on Financial Data Governance (Hastings Law Journal)

"Financial Data Governance"
Douglas W. Arner, Giuliano G. Castellano, and
Eriks K. Selga (RPg)
Hastings Law Journal, Volume 74, Issue 2, pp. 235-292
Published in 2023

Abstract: Finance is one of the most digitalized, globalized, and regulated sectors of the global economy. Traditionally technology intensive, the financial industry has been at the forefront of digital transformation, starting with the dematerialization of financial assets in the 1960s and culminating in the post–2008 global financial crisis era with the fintech movement. Now, finance is data: financial transactions are transfers of data; financial infrastructures, such as stock exchanges and payment systems, are data networks; financial institutions are data processors, gathering, analyzing, and trading the data generated by their customers. Financial regulation has adapted to this fast-paced evolution both by implementing new regimes and by adapting existing ones. Concomitantly, general data governance frameworks to protect a broad spectrum of interests, from individual privacy to national security, have emerged. Though these areas of law intersect, their relationship often remains unclear. This Article sheds new light in this critical area, focusing on key challenges and providing viable solutions to address them.

Douglas Arner et al on Digital Finance, Financial Inclusion, and Sustainable Development: Building Better Financial Systems

"Digital Finance, Financial Inclusion, and Sustainable Development: Building Better Financial Systems"
Douglas Arner, Ross Buckley, Dirk Zetzsche, and Artem Sergeev
in J Beirne, J Villafuerte & B Zhang (eds), Fintech and Covid-19: Impacts, Challenges, and Policy Priorities for Asia (ADB Institute 2022) ch 7
Published in 2022

Introduction: The year 2020 marked the start of a new decade and a new period of evolution for the global financial system and the global economy. It also brought the first global pandemic of the 21st century, and the worst in over 100 years, since the Spanish flu of 1918. The coronavirus disease (COVID-19) pandemic has caused significant social and economic disruption, with developing countries most severely impacted, across Asia and globally. Everywhere, the greatest toll has fallen on those most vulnerable, damaging to human development across the globe. The invasion of Ukraine at the beginning of 2022 is worsening the situation, particularly for the most vulnerable countries.

Douglas Arner et al on Systemic Banking Crises and Designing Appropriate Systems of Public Support (European Business Organization L Rev)

"COVID-19, Macroeconomic and Sustainability Shocks, Moral Hazard and Resolution of Systemic Banking Crises: Designing Appropriate Systems of Public Support"

Douglas W. Arner, Emilios Avgouleas and Evan C. Gibson
European Business Organization Law Review
Published in 2022

Abstract: Banks have so far weathered well the financial turbulence caused by COVID-19 while at the same time being central in the economic and financial response. As the crisis moves from its initial phase as a short-term liquidity shock, the financial sector is facing increasing volumes of non-performing loans, raising the spectre of a banking solvency crisis. In economies already burdened with low-quality assets, the COVID-19 fallout is intensifying existing problems with legacy loans heightening the risk of a banking crisis. These issues are now being worsened by the impact of inflation and the invasion of Ukraine. Thus, addressing increasing volumes of bad loans, while supporting the proper functioning of the financial system, is a major challenge with systemic repercussions for a range of economies. This paper identifies a great paradox: since the bank rescues of the 2008–9 Global Financial Crisis there has been a disproportionate focus on the liability side of bank balance sheets through resolution measures such as bail-in and the accumulation of bail-inable debt. Post-crisis bank resolution regimes have overlooked solutions lying within the asset side of bank balance sheets. This paper analyses historical evidence to argue that concentrating on a liability-focused approach to the exclusion of asset-side solutions is ill-conceived. An excessive accumulation of non-performing loans on the asset side of bank balance sheets inevitably renders resolution interventions on the liability/equity side ineffective or at the very least insufficient to maintain banking system viability and financial stability. Bank asset restructuring involving the use of asset management companies, asset protection schemes and even capital injections can play a critical role in achieving an expeditious restoration of banking systems’ health following a major macroeconomic, sustainability or financial crisis.

New Book by Evan Gibson: A Regulatory Design for Financial Stability in Hong Kong (CUP)

A Regulatory Design for Financial Stability in Hong Kong

Evan Gibson
Cambridge University Press
Published in August 2022

326 pp.

Book Description: In Hong Kong, the banking system is the primary source of financial stability risk. Post-2008 regulatory reforms have focused on financial stability policies and tools while neglecting the design of supervisory models. This book provides a comparative analysis of how supervisory models affect the management of financial stability regulations in Hong Kong's banking system. Regulatory issues discussed span prudential regulations, systemically important banks, unconventional liquidity tools, deposit insurance, lender of last resort, resolution regimes, central clearing counterparties and derivatives, Renminbi infrastructure, stock and bond connect schemes, distributed ledger technology, digital yuan, US dollar sanctions, cryptocurrencies, RegTech, and FinTech. A Regulatory Design for Financial Stability in Hong Kong elucidates the flaws and synergies in Hong Kong's banking regulatory framework and proposes conventional and innovative regulatory reforms. This book will be of great interest to banking, financial, and legal practitioners, central bankers, regulators, policy makers, finance ministries, scholars, researchers, and policy institutes.

     The author, Evan Gibson, is a Research Assistant Professor with the HKU-SCF FinTech Academy at the Faculty of Law, University of Hong Kong. Dr Gibson’s research in financial law and regulation, economic law, comparative law and financial technology is recognised in world-leading publications including Financial Markets and Exchanges Law (2021), The Cambridge Handbook of Twin Peaks Financial Regulation (2021) and the Research Handbook on Asian Financial Law (2020).

     The book is now available at Amazon (Amazon.COM).  Related Event (Event URL on LinkedIn). Dr Evan Gibson will appear as guest on “Regulatory Ramblings – BRIEFS” with host Ajay Shamdasani to talk about the book on 29th September 2022 at 11:30AM to be streamed LIVE via HKU FinTech LinkedIn page. Regulatory Ramblings – BRIEFS is a 30-minute video podcast produced by HKU FinTech and hosted by HKU-SCF FinTech Academy, HKU-edX Professional Certificate in FinTech and Reg/Tech Lab.

Emily Lee on De-risking Practices in Hong Kong and Technological Responses (Common Law World Review)

"Technology-driven solutions to banks’ de-risking practices in Hong Kong: FinTech and blockchain-based smart contracts for financial inclusion"
Emily Lee
Common Law World Review, 
Published on 18 May 2022

Abstract:   This article examines banks’ de-risking practices inside Hong Kong's Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime, a problem that has created considerable tension between the demands of AML/CFT prevention and those of financial inclusion. It unravels the public policy tensions stemming from a multitude of financial reform causes, namely the facilitation of AML/CFT regulatory compliance, the promotion of financial technology (FinTech) innovation and an ultimate expansion in financial inclusion. The article argues that tiered account services are an important first step towards financial inclusion, culminating in the introduction of simple bank accounts by some banks to mitigate the effect of de-risking. While proposed solutions such as the know-your-client utility system and central data repository may contribute to a digital financial inclusion framework, they are not tailored to solve a specific problem (de-risking). The article therefore proposes and evaluates whether FinTech and blockchain-based smart contracts qualify as alternative solutions to de-risking. The article aims to address those policy tensions and contribute to the regulatory policy formulation and the rule-making for financial law and regulation intended to facilitate financial inclusion.

Frederick Long & Syren Johnstone on Applying ‘Deep ESG’ to Asian Private Equity (Journal of Sustainable Finance & Investment)

"Applying ‘Deep ESG’ to Asian private equity"
 Frederick J. Long & Syren Johnstone
Journal of Sustainable Finance & Investment
Published online in February 2021

Abstract: At this stage of Asia's development there is a need, and an opportunity, to establish a validation methodology that better gauges ESG implementation and sustainability aspirations in Asian private equity. Private equity, like major public market and debt investors such as Blackrock, has adopted language that suggests a proactive approach to ESG management. However, process-oriented ESG compliance presently far outstrips evidence of tangible contributions to ESG objectives and outcomes. This article describes a taxonomy of common approaches to ESG investment practices in Asian private equity and discusses their shortcomings. It then presents ‘Deep ESG’ as an alternative approach that operationalizes ESG and sustainability metrics more holistically than existing frameworks. The Deep ESG framework enables a higher level of market-led intentionality that better informs institutional investors, regulators, communities, and employees as they evaluate private equity's ‘balance sheet’ of ESG outcomes. By investing in tools for goal setting, measurement and evaluation and applying them consistently across all target and portfolio companies, private equity managers can pivot away from a defensive approach by working with stakeholders to shape constructive solutions to urgent sustainability goals.

Douglas Arner et al on Decentralized Finance (Journal of Financial Regulation)

"Decentralized Finance"
Dirk A Zetzsche, Douglas W Arner, Ross P Buckley
Journal of Financial Regulation, Volume 6, Issue 2, pp.  172–203
Published in September 2020

Abstract: DeFi (‘decentralized finance’) has joined FinTech (‘financial technology’), RegTech (‘regulatory technology’), cryptocurrencies, and digital assets as one of the most discussed emerging technological evolutions in global finance. Yet little is really understood about its meaning, legal implications, and policy consequences. In this article we introduce DeFi, put DeFi in the context of the traditional financial economy, connect DeFi to open banking, and end with some policy considerations. We suggest that decentralization has the potential to undermine traditional forms of accountability and erode the effectiveness of traditional financial regulation and enforcement. At the same time, we find that where parts of the financial services value chain are decentralized, there will be a reconcentration in a different (but possibly less regulated, less visible, and less transparent) part of the value chain. DeFi regulation could, and should, focus on this reconcentrated portion of the value chain to ensure effective oversight and risk control. Rather than eliminating the need for regulation, in fact DeFi requires regulation in order to achieve its core objective of decentralization. Furthermore, DeFi potentially offers an opportunity for the development of an entirely new way to design regulation: the idea of ‘embedded regulation’. Regulatory approaches could be built into the design of DeFi, thus potentially decentralizing both finance and its regulation, in the ultimate expression of RegTech.

Douglas Arner et al on Stablecoins: Risks, Potential and Regulation (BIS Working Paper)

"Stablecoins: risks, potential and regulation"
Douglas Arner, Raphael Auer and Jon Frost
BIS Working Papers No 905
November 2020

Abstract: The technologies underlying money and payment systems are evolving rapidly. Both the emergence of distributed ledger technology (DLT) and rapid advances in traditional centralised systems are moving the technological horizon of money and payments. These trends are embodied in private “stablecoins”: cryptocurrencies with values tied to fiat currencies or other assets. Stablecoins – in particular potential “global stablecoins” such as Facebook’s Libra proposal – pose a range of challenges from the standpoint of financial authorities around the world. At the same time, regulatory responses to global stablecoins should take into account the potential of other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for “embedded supervision”. Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address. Click here to download the full paper.

Douglas Arner et al on Decentralized Finance (Journal of Financial Regulation)

"Decentralized Finance"
Dirk A Zetzsche, Douglas W Arner, Ross P Buckley

Journal of Financial Regulation

Published in September 2020

Abstract: DeFi (‘decentralized finance’) has joined FinTech (‘financial technology’), RegTech (‘regulatory technology’), cryptocurrencies, and digital assets as one of the most discussed emerging technological evolutions in global finance. Yet little is really understood about its meaning, legal implications, and policy consequences. In this article we introduce DeFi, put DeFi in the context of the traditional financial economy, connect DeFi to open banking, and end with some policy considerations. We suggest that decentralization has the potential to undermine traditional forms of accountability and erode the effectiveness of traditional financial regulation and enforcement. At the same time, we find that where parts of the financial services value chain are decentralized, there will be a reconcentration in a different (but possibly less regulated, less visible, and less transparent) part of the value chain. DeFi regulation could, and should, focus on this reconcentrated portion of the value chain to ensure effective oversight and risk control. Rather than eliminating the need for regulation, in fact DeFi requires regulation in order to achieve its core objective of decentralization. Furthermore, DeFi potentially offers an opportunity for the development of an entirely new way to design regulation: the idea of ‘embedded regulation’. Regulatory approaches could be built into the design of DeFi, thus potentially decentralizing both finance and its regulation, in the ultimate expression of RegTech.

Three Decades of International Financial Crises : What Have We Learned and What Still Needs to be Done? (ADB Paper Series)

"Three Decades of International Financial Crises:What Have We Learned and What Still Needs to be Done?"
Ross P. Buckley, Emilios Avgouleas, and Douglas W. Arner

ASIAN DEVELOPMENT BANK

ADB Economics Working Paper Series No. 615
Published in June 2020

Abstract: Fragility that periodically erupts into a full-blown financial crisis appears to be an integral feature of market-based financial systems in spite of the emergence of sophisticated risk management tools and regulatory systems. If anything, the increased frequency of modern crises underscores how difficult it is to diversify away systemic risk and that perceptions of perfectly stable financial systems are normally flawed, even if the source of the next crisis remains well concealed to the expert eye. 

     Although it is impossible to forecast a financial crisis with a high degree of accuracy and certainty, earlier crises always leave lessons useful in preparation for future crises, from whatever source. It is thus clear that the best way to deal with preventing and addressing major financial crises is to build the defenses of the financial system, including effective institutions, while at the same time trying to identify potential sources of crisis. We should take every opportunity to learn and work to build stronger and more effective financial systems. This paper compares and contrasts the three major crises of the past 3 decades, both to distill the lessons to be learned from them and to identify what more can be done to strengthen our financial systems. As the world addresses the financial impact of the COVID-19 pandemic, the centrality of these lessons is clear.

Castellano & Tosato on Personal Property Security Law: International Ambitions and Local Realities (new book chapter)

"Personal Property Security Law: International Ambitions and Local Realities"
Giuliano Castellano & Andrea Tosato
in L Ghia (ed), International Business Law (Wolters Kluwer Int'l, 2019) 283-337
Published in December 2019, U of Penn, Inst for Law & Econ Research Paper No. 20-27
Abstract: Personal property security law is a key element of “access to credit” and “financial inclusion”. The prevailing view is that a legal framework enabling the effective use of personal property as collateral markedly benefits both lenders and borrowers. Lenders can offer financing at a lower cost thanks to reduced credit risk; borrowers can access funding by leveraging the otherwise unavailable value of the assets integral to their operations.
     Over the past century, the priorities of personal property security law have evolved fundamentally. As small and medium-sized enterprises (SMEs) and individual entrepreneurs have become the growth engine of both developed and developing economies, legislators have grown sensitive to the financing needs of these entities. In parallel, the advent of the information society has demanded that lawmakers address squarely the rules governing the use as collateral of intangibles such as “receivables”, “intermediated securities”, “non-intermediated securities”, and “intellectual property rights”, rather than confine their gaze to tangibles such as industrial machinery, mobile equipment and inventory. Concurrently, the increasingly transnational nature of both economic development policies and commercial activity have engendered the need for global principles and standards for asset-based lending.
     To address these novel priorities and promote a healthy and vibrant credit ecosystem, international and regional organizations have undertaken projects aimed at modernizing and harmonizing personal property security law. Over time, these efforts have yielded a panoply of legal instruments. Binding conventions have been adopted to unify the rules of discrete facets of personal property security law, while soft-law texts, such as model laws and legislative guides, have been formulated to supply comprehensive legal templates to lawmakers keen to revise their domestic legal regimes. Nevertheless, states have struggled to assimilate these international efforts into their domestic legal systems. Common law jurisdictions have been loath to abandon the familiarity and safety of the path paved by centuries of case law; in similar vein, civil law jurisdictions have resisted inducements to renovate the normative infrastructure erected by the codifications of the 19th century.
     This Chapter explores the tension between international ambitions and local realities, with a special focus on the issues encountered in civil law jurisdictions. To this end, the case of Italy is examined as a living experiment in comparative personal property security law. In this jurisdiction, the recent enactment of a non-possessory security device, absent a comprehensive reform of the country’s civil code affords important lessons for any civil law system which might be pondering personal property security law reforms. More profoundly, it epitomizes the gap that separates the aspirations of international legal instruments from their effective implementation in domestic contexts. This analysis is divided into two parts. The first reviews international and regional legal initiatives that have shaped the personal property law landscape and then identifies a set of core tenets shared among them. In the second part, attention shifts to Italy, scrutinizing both the personal property security legal edifice originally constructed in this jurisdiction and the attempts to overhaul it that have taken place over the past three decades. This is followed by a critical appraisal of the current state of the law, by reference to the aforementioned core tenets of personal property law reform.

Expanding Access to Financial Protection (Shahla Ali Profiled in HKU's KE Newsletter)

"Expanding Access to Financial Protection"
KE Newsletter - Issue 18, April 2020
Justice should rely on universal participation and should be accessible to all.In a boost for investor protection, the Hong Kong Financial Dispute Resolution Centre (FDRC) adopted new rules in January 2018 that enabled consumers to claim more and benefit from a longer window for lodging claims. The new rules have led to many more consumer claims being resolved and have also strengthened the FDRC’s role by enhancing access to its services and increasing the amounts claimable. These policy changes have also enhanced Hong Kong’s reputation as a global financial centre.
    Research conducted by Professor Shahla Ali of the Department of Law directly impacted the FDRC’s ‘Proposal to Enhance the Financial Dispute Resolution Scheme’, which was launched in October 2016, and the FDRC’s consultation conclusions, which were published in August 2017. In these conclusions, the FDRC adopted three key reforms. The first was to increase the maximum claimable amount to HK$1,000,000 (up from HK$500,000 in the original rules). The second was to extend the time limit for lodging a claim to 24 months (up from 12 months) from the date of purchase or the date of first knowledge of the loss, whichever is later. Thirdly, the FDRC expanded its coverage to small and medium-sized enterprises (SMEs) that have a relationship with financial institutions.

     Professor Ali proposed six principles for reforming financial dispute resolution following the global financial crisis of 2008, which saw many investors in Hong Kong and beyond suffer significant losses, many of which were attributed to a lack of transparency in the financial system and limited protection for investors. The principles were independence, impartiality, accessibility, efficiency, fairness and equity emerging from the view that justice should rely on universal participation and should be accessible to all. 

     “In 2008, there was no systematic mechanism to handle consumer financial claims against banking institutions in many jurisdictions including Hong Kong,” said Professor Ali. “Retirees and others had to search for recourse. This was true in many other parts of the world. Why not learn from one another about the principles at play, share what is working and build stronger institutions?” ... Click here to read the full text.  

Syren Johnstone on "Fit for Purpose: Blockchain Regulation" (Podcast@Stanford Law School)

"Fit for Purpose: Blockchain Regulation"
Podcast@Stanford Law School

Syren Johnstone
March 2020

Summary: In this episode, Hong Kong University’s Syren Johnstone brings an international perspective to a discussion about blockchain regulation, and asks foundational questions about the relationship between emerging technologies and the law. Are our securities laws the best framework with which to examine cryptocurrencies? How can blockchain and AI help with things like a pandemic response? And, above all, what does it mean for regulation to be “fit for purpose”?  To listen, click here (total time: 1hr, 4min). For the transcript, click here.

New Book: Research Handbook on Asian Financial Law (Edward Elgar)

Research Handbook on Asian Financial Law

Edited by Douglas Arner, Wai Yee Wan, Andrew Godwin, Wei Shen,  and Evan Gibson

Edward Elgar
2020, 592 pages

Description: This comprehensive Research Handbook provides an in-depth analysis of the different financial law approaches, legal systems and trends throughout Asia. Considering how reforms following the crises have been critical for the development and growth of the region, this insightful book explores a broad range of post-crisis financial regulatory issues. It also examines how inconsistent and divergent approaches to financial market regulation are curtailing the region’s potential.

     By focusing on the legal frameworks and regulatory models at a national level, this innovative Research Handbook addresses opportunities and challenges for financial markets and convergence in the region. Key topics include the different legal and regulatory approaches to common issues, such as banking regulation and resolution, FinTech, insolvency frameworks and ASEAN financial market integration. Specific regulatory approaches are discussed in relation to areas such as Renminbi internationalization, Islamic banking and finance, shadow banking, crowdfunding, venture capital, derivatives, bond and securities markets. The book concludes with an analysis of the impact of FinTech on regulatory convergence in Asia.

     The Research Handbook on Asian Financial Law will be of great value to law students, academics and policymakers working across a diverse range of fields including financial regulation, Asian studies, banking resolution and insolvency.  Click here to see the Table of Contents.

"BigTech" in the Financial Sector, In Conversation with Douglas Arner (SEACEN Podcast Season 3 Episode 1)

SEACEN Podcast Season 3 Episode 1 - In Conversation with Prof. Douglas Arner

14 January 2020

Summary: “BigTech” in the Financial Sector: More Choice for the Consumer, More Challenges for the Regulator? SEACEN financial sector supervision experts Mark McKenzie and Glenn Tasky talk with prolific writer and educator Professor Douglas Arner, Kerry Holdings Professor in Law and Co-Founder, Asian Institute of International Financial Law, Faculty of Law, University of Hong Kong, about the entry of BigTech – companies such as Facebook, Apple, Google, Microsoft, Amazon, Alibaba, and Tencent – into the provision of financial services such as lending, payments, and even exotic cross-border instruments such as stablecoins. What are the benefits these big players bring, and what are the risks of allowing firms that are already big in other markets potentially dominate banking as well?

AIIFL Working Paper: Requisites for Development of a Regulated Secondary Market in Digital Assets (Syren Johnstone)

"Requisites for Development of a Regulated Secondary Market in Digital Assets"

Syren Johnstone

AIIFL Working Paper No. 33
26 April 2019

Abstract: The component parts of a more complete market system in digital assets are steadily being assembled. The initial focus on the primary market has increasingly expanded to the secondary market. Cryptoexchanges are a particular subject of interest given their growing predominance and the exchange-like or intermediary-like roles they may undertake at various times.

     This paper considers the pathway issues for the development of a regulated secondary market in digital assets. It explores the conditions necessary to develop a regulatory framework that does not also serve to reshape and confine the possibilities offered by cryptographic consensus technology. 

     To achieve core regulatory objectives, what regulation attaches to will need to be sensitive to the characteristics of different centralized and decentralized cryptoexchange models as well as the digital assets traded on them. The problem of establishing accountability and anchoring locus in relation to decentralized cryptoexchanges is considered. How the common characteristics of digital assets impact on the ability to develop secondary market regulation that meaningfully meets policy objectives is reviewed.

     The potentially discriminating effect of imposing regulatory oversight on an industry in which different models of operation are still emerging must be carefully weighed. It is suggested that development of the regulatory framework should be model-neutral, form-independent and remain focused on the oversight of functions and establishing accountability for wrongdoing. Regulation should not be prematurely imposed in a manner that may inhibit the ability of private market regulation to develop effective outcomes that align with public policy concerns. Any development of regulatory oversight must also contemplate the involvement of intermediaries providing services specific to digital assets as well as intermediaries already involved in traditional markets.

     It is proposed that it is necessary to cease looking at the regulation of exchange systems and intermediary conduct in isolation from the characteristics of digital assets. There is a clear prospect for a more fundamental interaction between secondary market activity and the asset design process that could better facilitate the formation of regulatory building blocks. This depends on the development of an effective public-private partnership.  Click here to download the full working paper.

Syren Johnstone on Taxonomies of Digital Assets: Recursive or Progressive? (Stanford J of Blockchain L & Policy)

"Taxonomies of Digital Assets: Recursive or Progressive?"

Syren Johnstone

Stanford Journal of Blockchain Law & Policy

published online on 5 January 2019

Abstract: This Essay discusses the development of taxonomies that seek to map digital assets onto existing financial markets laws as a means of assisting regulatory clarity. The publication of such taxonomies has become something of a mini-industry, yet there has been little consideration given to the construction of taxonomies and their potential to develop—or constrain—thinking about how best to develop regulatory responses to the industry. This Essay suggests that taxonomies are often little more than descriptive, appearing to “solve” taxonomic problems while at the same time embedding restrictive assumptions, and accordingly can obstruct policy development.