Binance's recent decision to pull out of
The threat of this lack of clarity became even more pronounced last week when the U.S. Securities and Exchange Commission
Regulatory clarity is essential in order to allow the level of innovation essential for building a thriving economy. If this is missing, innovation will go elsewhere. This is true not only for the crypto market, but for everything, including the broader financial sector and the growing AI industry.
Just weeks after Canada announced new guidelines for crypto currency exchanges, Binance's founder,
Canada is not alone in waffling on regulation and creating an unstable environment for crypto companies. Rather than embracing a clear policy — even before the cases against Binance and Coinbase —
This leaves Canadians and most Americans with less financial freedom and access to innovative services than those in other countries, including in most of Europe, Asia and the Middle East. Leaving its populations with limited access to crypto trading and other services risks cutting them off from other business opportunities as well, and pushes homegrown innovation overseas. In fact, two months ago, long before the SEC lawsuit,
Threat intelligence has become a viable option for banks looking to gain insights about fraudsters communicating on Telegram with other criminals.
In addition to creating a lack of clarity around crypto trading, regulatory actions and threats in Canada and the United States have challenged the connections between crypto companies and banks. In Canada, there are
Whether there is a coordinated effort to cut crypto off from the financial sector or not, it is clear that this separation is happening. And while the victim today may be crypto, tomorrow's victims will be other innovations. Rather than fearing change and tamping down alternative financial systems or services, regulators need to establish clear rules for them from the outset — or simply leave them alone. Spending more than a decade making threats of heavy-handed regulation is not helpful and does not encourage innovation, to say the least.
Regulators would argue they are watching out for the public's interest. And it is true that, unfortunately, parts of the crypto industry can feel like the Wild West, with a few high-profile players engaging in unethical and illegal behavior. But these players are a minority, and much of the bad behavior, including the spectacular fall of FTX, which resulted in
Protecting consumers from fraud is indeed important, but this can be done to a large extent based on existing laws. It doesn't really matter if crypto is a security or a commodity (a debate that has continued for more than a decade, leaving an open question of which regulatory agency has jurisdiction in the space). It is also important that authorities draw a distinction between weeding out fraud or wrongdoing against consumers and enforcing regulatory standards. This distinction is missing in the suit against Binance, in which the SEC leveled charges of misusing consumers' money along with a violation of regulatory framework, including the failure to register as an exchange. Mixing these issues together risks making regulation look like punishment rather than a well-developed framework to encourage responsible and thriving businesses and services.
The fair and transparent enforcement of existing laws creates the stability that innovation needs in order to thrive while also protecting consumers. This concept is relevant far beyond crypto; in fact, when it comes to keeping people from using AI for nefarious purposes, simply enforcing existing anti-fraud and privacy laws would likely suffice, and be far more efficient than creating special regulatory requirements for the sector.
New technologies will inevitably play a growing role in the financial system and the economy in general, and regulators and other authorities need to try to keep up — after all, that is their job. But rather than doing their job, they are constantly playing catch-up with proposals and rules that should have been discussed a decade ago, creating more noise than productive action.
The government is limiting private innovation by not having a clear regulatory road map and throwing out new guidelines in a piecemeal fashion, creating chaos and uncertainty and forcing the best ideas to go elsewhere. This is now happening in fintech, but could very likely be repeated in other sectors, like AI, and is a threat to the supremacy of the North American economy.
The fintech and alternative investment industry, which is becoming a larger part of the overall financial system, also needs to do its part to deliver real products and services, and not just hype or scams. The days of fake it 'til you make it are over — for the industry and for regulators.
