“Greater regulatory clarity” needed for cryptocurrency in Guernsey

Wednesday 23 March 2022

Two local investors say that more discussion and action is needed from regulators for the Bailiwick to capitalise on the potential of cryptocurrencies.

They were speaking at a virtual talk on the Bailiwick's ‘crypto future’ at the Digital Greenhouse yesterday.

Ben Byrom, a Director at Ravenscroft Investment Management, said that Guernsey’s large financial services base required action to maintain competitiveness and intellectual property and to “stay relevant” in the global marketplace of the future.

“Don’t dismiss the technology - people want that clarity from the regulators, otherwise you risk being left behind,” said Mr Byrom.

Last October, the Guernsey Financial Services Commission introduced an exchange-traded fund for bitcoin, which required some rewriting of the law, according to Mr Byrom. He said the move demonstrated the “pragmatism of the regulator”.

However, Philip Le Pelley, who has 17 years’ experience in wealth management, said that Guernsey is "behind on the regulatory side of things”. He said - as an example - that legal solutions in Australia are developing at a faster pace.

“The [exchange-traded fund] is a good start which plays into Guernsey’s strengths” said Mr Le Pelley. But he also said more regulation is needed before there can be radical innovation in the sector.

"Guernsey can’t sit by and ignore - we need to grab it as it will lead to more business in the future."

Pictured: A block chain - on which cryptocurrencies are based - functions as a highly secure digital ledger of information which makes the virtual data difficult to track, hack or duplicate.

Mr Byrom argued that the broader adoption of digital asset classes globally has brought more capital and more “big players” into the cryptocurrency market.

He said that this has resulted in a demand for “greater regulatory clarity” to provide a pragmatic framework which “doesn’t kill the industry”.

He acknowledged the need to ensure people are not using cryptocurrency for improper purposes, such as money laundering and terrorist financing.

Mr Le Pelley agreed. He said that too little regulation would result in a lack of trust around the industry whilst too much regulation would “kill innovation”. He also said that such regulatory challenges face governments and regulators around the world.

He said the potential benefits linked to cryptocurrencies and Web 3.0 do not necessarily apply only to financial services.

"We are just at the very start of Web 3.0 and it will blossom," he said.

Pictured: Web 3.0 is the next iteration of the World Wide Web, which enthusiasts say will provide greater connectivity, decentralisation and openness through artificial intelligence. 

Mr Byrom suggested that big business is already immersing itself in the metaverse marketplace and that Web 3.0 heralds the “tokenisation of everything”.

Large amounts of capital investment have already been committed to Web 3.0 - and into gaming initiatives in particular.

There was consensus on the applicability of these new domains to the real world.

Mr Byrom said that utilising the block chain can reduce costs, inefficiencies and errors.

Mr Le Pelley said that using the block chain can help reduce the risks for counterparties and that decentralised finance has “a big role to play”.

He expects cryptocurrencies to become a part of wealth management portfolios alongside traditional equity, bonds and funds in ways which are currently prohibited. 

He said that in theory “everything” could be decentralised – from mortgages to buying and selling properties – but that such decentralised processes would probably still demand a centralised mediator in order to "access block chain services".

He suggested that banks would function more like a trusted third party wallet for the decentralised block chain.  

Pictured (top): Ben Byrom (above) and Philip Le Pelley (below).