Caroline Malcolm is Chainalysis’ Head of International Policy.
With the new year now well underway, I’m delighted to announce that I’ve joined the exceptional team at Chainalysis as Head of International Policy, covering LATAM, EMEA and APAC. I’ll be working with Salman Banaei, Head of Public Policy for North America, to define priorities, as well as Senior Policy Advisor Clark Flynt-Barr and our growing policy team globally (check out our new roles in the international team here).
After more than 15 years working for and with governments, some of the first questions I get asked when talking about this move is: “Why Chainalysis?” and “Why now?”
Digital assets are booming, both in their more “traditional” forms like bitcoin and stablecoins, but also through newer applications like NFTs and DeFi. From a policy expert’s perspective, their unique characteristics, including the decentralized and distributed nature of the underlying technology, often make these assets and their operating environments a difficult match to the existing policy and regulatory toolkit. But this doesn’t mean they can’t or shouldn’t be regulated – and that’s where the excitement and challenge lies!
Working at Chainalysis means being at the forefront of the data and technology that will shape the future of the industry. As a data analytics company focused on bringing greater transparency to the world of blockchains and digital assets in particular, Chainalysis is a natural partner for a full range of stakeholders in this ecosystem – from governments and the private sector, through to international organisations and academia.
With policy discussions heating up across the globe, being able to play a constructive role as stakeholders seek to define an appropriate policy and regulatory environment, informed by our unrivaled data and analytics as well as perspectives from our diverse client base, from government agencies to TradFi right through to those at the cutting edge of crypto, is an extremely exciting opportunity. Heading into 2022, there are a few policy areas where we can expect to see meaningful movement across the international landscape.
1. AML rules
First, with the adoption last year of updated guidance from the Financial Action Task Force on how anti-money laundering (AML) rules apply to digital assets, we’re going to see countries move into the detailed implementation phase. Both from a government and industry perspective, significant divergence in implementation across countries is likely to lead to worse outcomes in terms of efficiency and effectiveness of the global AML/CFT system. So our goal is to work with those implementing the rules to promote an underlying coherency across jurisdictions, while still leaving room for addressing local specificities. In real terms that means ensuring that rules are founded on a thorough understanding of how the technology works, as well as to highlight tools which may not be available in the world of traditional assets, but can drive better outcomes in achieving AML/CFT objectives in the digital asset ecosystem. We need to make sure not just that those are resilient but that there is comfort with how they work and the robustness of the outcomes they deliver, and this will really require a partnership between industry and government.
Beyond AML, we’re also seeing taxation of digital assets emerge as top of mind for policymakers for the year ahead. The 2017 boom left many participants with significant gains, and an initial focus on clarifying how tax rules apply. From there, attention is turning to access to data about taxpayers’ digital assets holdings and transactions. Reporting requirements are being introduced, with domestic provisions such as those in the US Infrastructure Investment and Jobs Act, or international information exchange mechanisms being developed for digital assets by the OECD. Given Chainalysis’ data-rich environment as well as tax expertise led by Roger Brown, we’re working to encourage information reporting rules that align with exchanges’ ability to report, and that tax authorities can efficiently analyse the information and ensure the appropriate amount of tax has been paid, without the need for time-consuming engagement with exchanges or taxpayers.
3. DeFi regulation
Decentralized Finance or DeFi is another looming topic for regulators as we move into 2022. While the new FATF guidance as well as the draft EU Regulation on MiCA (Markets in Crypto Assets) have touched on this issue, the foundational question of how best to tackle decentralized platforms that can run autonomously without support of a central company or person to deliver services from crypto-exchange to lending and beyond, is front of mind. As our own DeFi Adoption index shows, the total digital asset sector has grown over 2300% since Q3 2019 through to end Q2 2021, with a total received value in DeFi apps moving from $1.3B in September 2019 to $578.2B in June 2021.
4. Consumer protection
Fourthly, the issue of consumer protection for those participating in the digital asset economy has attracted more regulator interest in recent times. From crypto “finfluencers” to NFTs, the latest players in this space have continued to reach into new market segments, broadening access while raising concerns in some quarters about consumers’ understanding of what different digital assets represent, as well as cyber crime risks. Chainalysis has been working with our clients to help prevent their users from sending funds to known scams, and over the coming 12 months, we expect to see closer consideration of how to ensure that consumers are well informed and protected as they make their foray into the digital asset world.
5. Stablecoins and CBDCs
Finally, the growth of stablecoins combined with the growing interest in, and in a few cases introduction of, central bank digital currencies (CBDCs). Governments around the world are thinking about how to harness the advantages of the technology while providing adequate oversight and controls. Chainalysis has a key role in making sure that the design principles behind CBDCs are sound and that stablecoins are able to support innovation and adoption while mitigating any AML concerns.
Beyond the headlines
Beyond AML, tax, DeFi, consumer protection and stablecoins as headline policy topics for 2022, we can however also expect to see discussions continue around issues of financial markets regulation more generally (for example MiCA in Europe), current privacy frameworks and their intersect with decentralised systems, as well as how to frame ESG metrics for the sector.
In the 8 years since its inception, Chainalysis has demonstrated a commitment to working closely with its clients, which includes a full range of government agencies, traditional financial institutions, through to crypto-native entities, to build the best investigative solutions based on market-leading data and analytics that allow them to understand blockchains and what their data can tell us about the movement of digital assets. Today, as policy issues in the sector come to the fore, I look forward to bringing that same approach to our contribution to discussions with decision-makers across the world, to develop a policy and regulatory framework that safeguards the interests of our society as a whole, including by promoting innovation and safe access to the new financial ecosystem.
This material is for informational purposes only, and is not intended to provide legal, tax, financial, or investment advice. Recipients should consult their own advisors before making investment decisions. Chainalysis has no responsibility or liability for any decision made or any other acts or omissions in connection with Recipient’s use of this material.