Policy-makers in the financial services industry – like those in the National Hockey League, who must fix its fatally flawed approach to overseeing Canada’s favourite sport – must come to grips with the need to referee the largely unregulated cryptoasset space properly.
As the marathon Stanley Cup playoffs grind toward their conclusion, the most notable feature of this year’s post-season has been regulatory failure – that is, refereeing malfunctions. Questionable officiating decisions are an inevitable part of any game, but in this playoff season, crucial games (indeed, whole series) have turned on highly dubious calls and erratic use of video replay to resolve refs’ errors. The result is loss of confidence in the entire enterprise – and growing demand from the league’s customers to fix its approach to oversight.
The same sort of existential challenge is confronting policy-makers in the financial services industry, as the emerging cryptoasset space has similarly exposed.
The traditional financial services industry’s regulators initially were discouraged from getting involved in the fledgling cryptoasset sector for fear of stifling innovation with heavy-handed rules. Then came the collapse of one of Canada’s biggest cryptoasset exchanges, QuadrigaCX – the cryptoasset equivalent of the Stanley Cup vanishing altogether.
QuadrigaCX’s failure resulted in more than $200 million of investors’ money going missing, exposing the folly of allowing the cryptoasset sector to remain, for the most part, unsupervised. While lessons learned will be cold comfort to investors facing massive losses, this episode should prompt policy-makers to develop a basic regulatory framework at the least.
In the same way that the tall foreheads at the NHL’s headquarters must resolve essential questions about how their game will be officiated to maintain the integrity of competition, the financial services industry’s policy-makers must settle on fundamental rules for firms operating in the cryptoasset space. Basic custody, asset segregation, and books and records requirements are obvious priorities in the wake of QuadrigaCX.
Referees and regulators alike are noticed only when they fail. To keep them out of the spotlight, policy-makers in both arenas must set credible standards and commit to consistent enforcement.