FDIC Vice Chair Calls for Clarity in Blockchain Regulations, Highlights Risks and Opportunities
Summary:
U.S. Federal Deposit Insurance Corporation (FDIC) Vice-Chair Travis Hill warned of potential loss of opportunities for the U.S. economy and bank customers, urging that the regulation of blockchain technology must be carefully implemented. Discussing the transformational prospects of tokenizing real-world assets (RWA), he argued the need for clarity and consistency in regulations. Hill noted concerns over blockchain regulations causing banks to neglect innovation, calling for an equal treatment of all types of deposits. He also criticized the SEC's SAB 121 that differentiates crypto assets from other asset types.
Travis Hill, the Vice Chair of the U.S. Federal Deposit Insurance Corporation (FDIC), warned of lost opportunities for bank consumers and the U.S. economy if regulations for blockchain technology are not well handled during his speech at the Mercatus Center think tank on March 11. He highlighted the risk already present in the United States, partly resulting from the FDIC's approach.
Hill focused on the potential power of tokenization of bank deposits and a myriad of real-world assets (RWA), which could make executing financial transactions around the clock with instant settlement possible. It would also offer programmability of payments, speeding up settlement times for various transactions including intraday repurchase exchanges and some bond issuances. This could also enhance consumer utility by substituting programmable payments for escrow.
Hill also underscored the questions surrounding tokenization, such as the utilization of unified ledgers, ownership rights as assets progress along the blockchain, and cross-blockchain compatibility. Furthermore, according to Hill, with many foreign jurisdictions vocally participating in establishing global benchmarks around blockchain, "The United States risks ceding influence at this crucial juncture."
The concept of programmability could mitigate settlement risks and streamline Know Your Customer verification, but it could also inadvertently enable rapid asset transfers by consumers, possibly fueling bank runs. Therefore, Hill proposed the need for an 'off' switch as a countermeasure.
In the past, regulatory bodies have struggled to implement uniform policies, prompting establishments to engage with their regulator on a case-by-case basis, Hill noted. The FDIC regulations, which do not distinguish between transactions on a blockchain involving crypto or RWA, were deemed by Hill to be burdensome and unevenly enforced.
Hill claimed that "Institutions have been sidetracked for months, responding to a continuous flow of information requests, which has detracted from their focus on innovative technologies and systems… The overarching message being relayed to much of the industry might as well be, 'don’t even bother trying.'"
Hill called for clear and consistent guidance from regulators so that deposits of any type are treated equally. He expressed criticism for the SEC's contentious Staff Accounting Bulletin 121 (SAB 121), which mandates financial institutions to handle crypto assets separately from other types of assets. This broad classification potentially encompasses tokenized RWA, Hill added.
Published At
3/12/2024 12:50:41 AM
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