‘Given the global scope of crypto and digital assets, it’s crucial to embed opportunities for harmonisation and reciprocity early in the development of emerging frameworks’, says Elise Soucie Watts, Executive Director at Global Digital Finance.
Originally, I wasn't attracted to finance at all! I used to work for a think tank focused on counterterrorism and geopolitical threats & have a background in international relations. However, I have always had an interest in the interconnectedness of political science and economics, so my work in counterterrorism ended up being a useful foundation.
I initially moved into finance, still having a keen interest in security, and worked in the Technology, Resilience and Cyber division at the Financial Conduct Authority (FCA) in the UK. While there I focused on CBEST testing for globally systemically important banks and my background was a useful preparation for threat intelligence and assessing the operational resilience of firms.
While at the FCA, I shifted my technology experience to refocus on the international regulation of crypto and digital assets. As I progressed in my work, I could truly see the potential for these technologies to change financial services, and much like any other wide change in the markets. I also saw how the regulatory frameworks we build today will shape how financial markets evolve and function in the future. To me, that is hugely exciting. Now I feel really grateful to be able to combine my original passion for policy and geopolitics with my new love for transformative technologies.
I firmly believe that DLT has the potential to improve productivity, drive growth, and create new jobs as well as new innovative products. The ‘how’ is in and of itself quite a wide use case, but also the most promising aspect of DLT, which is the potential for it to transform the underlying infrastructure of financial services. In the same way that telecoms, the internet, and cloud technology spurred major shifts in how financial markets functioned, DLT has the same potential – the next infrastructure upgrade is here.
This infrastructure transformation touches every aspect of financial services. For example, the immutable qualities of DLT which are key for instilling trust and maximising transparency make books and record keeping a powerful use case, particularly if regulators implement the technology themselves in order to improve reporting processes and build in tech-forward supervision from the outset.
There are a range of other exciting use cases, such as stablecoins for cross-border trade and their practical implementation in the shipping industry, technical efficiency gains in post-trade processes, and the upgrade and competitive advantage that digital gilts can deliver to a jurisdiction’s sovereign debt strategy. However, for me, the most exciting aspect of DLT always comes back to the first principles and the underlying infrastructure transformation. All other use cases are then built on top of that foundation.
This area of technology is still rapidly evolving, as is its implementation across financial services. It is difficult to hit a moving target, and much like the early regulation of derivatives, regulation almost always comes much later than the evolution of market functionality. However, this doesn’t have to be a bad thing. It can also give regulators the chance to holistically assess both the potential of new technologies as well as how risks can be appropriately regulated so that regulatory outcomes are met.
Yet the biggest challenge in achieving harmonisation is linked to the fact that the regulatory frameworks are still in the process of evolution and development. It is very difficult to harmonise when not all jurisdictions have a full framework in place.
The current patchwork of regulatory frameworks makes building in opportunities for harmonisation and reciprocity at the outset of emerging frameworks of critical importance. Enabling harmonisation of individual jurisdictional frameworks is imperative for the digital asset industry to be able to succeed and scale. One of the key advantages of DLT and digital assets is the potential of their global nature and the efficiency gains that can come through the streamlining of cross-border processes. Without harmonisation for specific products and activities, agreed between regulators on either a bi-lateral or multi-lateral basis, the benefits that stood to be gained from DLT’s transformation of financial infrastructure could be significantly hampered.
As the EU’s MiCA was one of the first comprehensive regimes to be implemented it is driving harmonisation due to the fact that most firms are cautioning against wide divergence from MiCA. Disparate regimes significantly increase compliance burdens and cost on firms. If the divergence is too wide, firms may narrow down the areas where they choose to operate, reducing cross-border efficiency and the scaling of digital markets.
While it is still early for most jurisdictions to lead on harmonisation (though their choices do have an impact on their fellow regulators and policymakers) the majority of harmonisation efforts at the moment come from global standard setters such as IOSCO, the FSB and FATF. The principles set out by these standard setters are a guiding metric for jurisdictions as they continue to build their national regimes.
To achieve harmonisation – not perfect equivalence, but a harmonised approach – there are a few concrete steps that both the public and private sectors can take now:
Alignment where possible to the principles set out by global standard setters;
More action and assessment taken by standard setters to see where jurisdictions are either aligned or misaligned with the principles set out (e.g., such as the FSB Peer Review);
Where jurisdictions are still building their regulatory frameworks, being cognisant of other already existing regimes and discussing with their fellow regulators at the outset what areas they should prioritise in terms of alignment to work towards future reciprocal arrangements; and
Direct feedback from industry to regulators on specific areas that need to be harmonised to support smoother operations, and what areas can be flexible across jurisdictions.
Detail detail detail! All the buzzwords are always mentioned like harmonisation & interoperability, but we need to dive more into what actually lies underneath these topics – because they are important, but we can go further in our discussions. ‘Who’ needs to be harmonising with ‘who’? Harmonisation of what – for example, is this a template for the terms of reference for stablecoin issuers, or is it reciprocity on the level of nation states? What type of interoperability are we talking about? Who is already enabling it, and where are the actual gaps in the market that can be solved?
Building on my response to the previous question, one of the things I love about PZF is the chance to have detailed conversations and go further on these topics than one does in a typical panel discussion.
Furthermore, the GFTN team then uses the practical output from the roundtables and panels to build from one discussion to another and work towards tangible outputs at the end of each year. These outputs, which range from white papers and reports to public-private sector initiatives, are a way to promote and underpin the greater adoption of market standards while also driving forward and scaling the adoption of crypto and digital assets.
About Elise Soucie Watts
Elise is the Executive Director of Global Digital Finance (GDF), board member, and also board advisor to several start-ups on policy & regulatory issues. Previously, she was at the Association for Financial Markets in Europe (AFME), leading Digital Assets and Data Strategy work, and prior to that she worked at the Financial Conduct Authority (FCA), across both their Technology, Resilience and Cyber Division. and International Division.
Named ‘Next Generation Leader of the Year’ at the 2022 Women in Finance Awards UK, and part of the Innovate Finance Standout 45 on the Women in Fintech Powerlist 2024 as a Regulatory and Policy Expert, Elise’s dual public and private sector experience positions her to lead both regulatory advocacy and contribute technical knowledge to support the growth of the digital assets ecosystem.
About Global Digital Finance Description
Global Digital Finance (GDF) is the leading global members association advocating and accelerating the adoption of best practices for crypto and digital assets. GDF’s mission is to promote and facilitate greater adoption of market standards for digital assets through the development of best practices and governance standards by convening industry, policymakers, and regulators.
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