Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), is the financial regulatory authority for Germany. They too, like every other regulatory authority the world over, have begun to seriously consider the usages and ramifications of blockchain.
Recently, BaFin published an article titled “Distributed Ledger: The technology behind virtual currencies: the example of blockchain.” Yes, the title is a little blocky and literal (quite Germanic). And yes the Germans are a little late to the party. After reading this article, however, one is left scratching their head. Some level of understanding seems to be missing.
Let’s quickly summarize the pace and tone of the article so that we can move into a brief analysis. Here goes.
In the section titled “Application Options” BaFin describes possible uses in the following way:
Through its system-based confirmation of transactions, DLT not only allows direct trade between two parties on the internet without requiring a central third trusted party or middleman. The transaction history of a particular item can also be recorded via the distributed ledger, meaning that it acts as a distributed register.
As a result of both these functionalities, DLT could also provide versatile applications for the future, such as in trading on the financial market, in digital payment transactions and in interbank trading.
BaFin then goes into specific detail in the categories of “Trading on the financial market, Saving of trading data, Digital payment transactions, and Interbank trading.”
As the author closes the article she describes the potential impact in the following way, “The impact on the financial industry of increased or even full-scale deployment of DLT cannot be foreseen as of yet. However, it seems that it has the potential to establish a new standard in the financial market.”
She goes on to state, “Keeping an eye on the possible risks right from the start is more important than ever. Data protection in transactions must e.g. be guaranteed and systems must also be protected from cyber attacks. Adherence to regulations on anti-money laundering, governance and compliance as well as for clearing and settlement must also be ensured. The lack of a central authority on conduct and regulations could pose problems here in particular.”
As those of us in the community know, this type of stiff and uncertain language is pretty typical of agency’s such as BaFin, but I must say that this group even takes it a little further. In some of the direct quotes that I have outlined above, the informed reader is almost left with the feeling that perhaps BaFin does not understand the technology very well.
This is a crucially important issue as more and more regulatory agencies consider blockchain technology. It seems so obvious, I will nonetheless state it. People only adopt what they understand. And if they are misinformed (or simply do not have a tight grasp on the concept) then they are not making good decisions regarding adoption because they do not properly understand the options.
SO, if you consider yourself to be a well-informed member of the blockchain (crypto) community, do your duty and go have dinner with someone from your regional regulatory agency. Get them in on the conversation.
These stiff government types are arguably in their insulated positions for a reason. This type of innovation from “the wild” will not doubt cause consternation. But only when there is proper understanding can there be meaningful adoption.
Disclaimer: The views expressed in the article are solely that of the author and do not represent those of, nor should they be attributed to CCN.
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Last modified: May 21, 2020 10:32 AM UTC