America’s Slow-Moving, Confused Crypto Regulation Is Driving Industry Out of US

An anonymous reader quotes an excerpt from an Ars Technica article: In the United States, the lack of regulatory clarity threatens to slow down not just mainstream adoption of new technologies but also innovation in digital payment options, potentially cutting off consumers and businesses nationwide from sought-after conveniences, simply because regulators can’t keep up with how digital assets are being used today. “There has to be some clarity that comes out, some standards, some ideas of the dos and the don’ts and some structure around it,” said May Zabaneh, PayPal’s vice president of product in blockchain, crypto, and digital currencies during a Money 20/20 session focused on how people use crypto to make digital payments. “Otherwise, that mainstream adoption will really be inhibited.” According to Zabaneh, digital payment processors need government agencies to ensure much more stability before the companies can confidently “explore the potential” of using digital assets like stablecoins or central bank digital currencies to provide alternative payment options in e-commerce. She said that even though PayPal has a responsibility to continue innovating in digital payments, efforts can become stalled because “there needs to be more clarity around regulation,” particularly regulations around consumer protection and the tax implications of using digital assets. These are areas US agencies have only just begun considering, and that’s holding innovation back. “In order for things to become mainstream, they have to be easily accessible, easily adoptable,” she said.

Zabaneh was not alone in calling for regulatory clarity to drive innovation. Executives from other payment processors like Checkout.com, cryptocurrency exchange platforms like Coinbase, and banks like JPMorgan Chase all repeated the same call in their sessions, warning that US fears over digital assets involved in financial crimes created hard-to-navigate compliance risks for those most invested in driving innovation. The executives said the US is moving so slowly in passing laws and establishing rules that industry leaders will start to conduct business elsewhere. Experts at Money 20/20 said this is already happening. The US wants to be on the leading edge of digital currencies, but tension remains between what President Joe Biden wrote in an executive order this year concerning the country’s economic “interest in responsible financial innovation” and the wide-ranging security risks, including those to consumers and businesses, as well as to national security. To keep fintech leaders doing business in the US and participating in what’s become a trillion-dollar market, Tufts University cybercrime expert Josephine Wolff told Ars she thinks the country must first prove it can prevent illegal activity and other security risks associated with digital assets. […]

The US government has struggled to keep up with the way digital assets are used but seems determined to crack down on illegal uses while simultaneously pushing aggressively forward with government-backed digital assets, like a central bank digital currency. Wolff said that because many in the government don’t know how digital currencies are used, both legally and illegally, legislators are unsure how to regulate new digital assets. Meanwhile, digital payment technologies continue to evolve. New uses emerge, and policymakers are continuing to look at the US’s existing financial regulatory framework while asking basic questions. Is this digital asset considered a form of currency like a security (such as bitcoins), or is it being traded like a commodity (such as non-fungible tokens)? Or is some new legislation, such as the Stablecoin Transparency Act, needed to regulate emerging digital assets? Until mainstream adoption of technologies makes evident the most common uses of digital assets, regulators will continue struggling to make clear laws defining how digital assets can be used. Wolff told Ars it’s a difficult policy agenda to navigate because “each of these new digital assets we see creates new opportunities for crime.”

“The United States is trying to balance two somewhat at-odds priorities: We want this technology to be sufficiently regulated and traceable so that we can conduct law enforcement investigations and hold criminals accountable,” Wolff told Ars. “But we also want it to be flexible enough that people can invent new things and experiment with new models and innovate. So I understand why companies are saying, ‘Well, look, we could innovate more if you told us exactly what’s allowed.'”

“Regulation of the financial services industry has a bad name, and rightfully so,” said Consumer Financial Protection Bureau’s director, Rohit Chopra, but CFPB was motivated to activate a dormant authority in the Consumer Financial Protection Act to ensure the US benefits from “a more decentralized and neutral consumer financial market structure” that “has the potential to reshape how companies compete in the sphere.”

“That could mean the most innovative companies capture the largest parts of the US payments market,” reports Ars, citing Wolff. “And as the market favors technologies and consumers adopt trusted digital assets, that could help regulators who still aren’t sure how to craft policy for digital assets.”