Source: Cointelegraph
Original: (The Necessity of Cross-Border Cooperation to Promote the Development of Digital Assets)
Author: Elise Donovan, CEO of BVI Finance
Digital assets are continuously rising. With the market value surging, there is a widespread expectation that regulation will take a more lenient approach. This trend has driven mainstream adoption, including a pilot program launched in the UK for issuing digital sovereign bonds and a large number of exchange-traded funds (ETFs) launched by global asset management companies.
Momentum Growth
As this momentum is unlikely to weaken in the short term, the rise of digital assets will drive demand for a deeper and more complex global financial ecosystem to support its continuously expanding application scenarios. This, in turn, creates opportunities for jurisdictions that can meet the needs of new decentralized finance (DeFi) businesses.
Like any innovation in the financial services sector, coupled with the rapid development of the digital asset industry, growth must be accompanied by a focus on risk mitigation.
International financial centers, due to their multi-national, decentralized, and agile characteristics, have an advantage in supporting these businesses. Therefore, regulators are adopting a cautious, risk-based regulatory approach to digital asset businesses. Cooperation and sharing of best practices will be key to reducing the impact of bad actors and mitigating the reputational damage caused by failures such as FTX, Three Arrows Capital, and Genesis.
International Appeal
In recent years, the number of licensed virtual asset service providers in international financial centers has surged. Many jurisdictions have demonstrated their regulatory strength, making them ideal destinations for digital asset businesses.
Taking the British Virgin Islands (BVI) as an example, the region has created a favorable environment for fintech innovation through legislation. With laws such as the (Virtual Asset Service Providers Act) (VASP Act), regulators have adopted a stringent yet business-friendly approach to overseeing digital assets. Since the act became formal law in 2023, the BVI has received over 80 license applications from digital asset businesses. Additionally, the region's regulatory sandbox allows businesses to pilot innovative financial service solutions, opening new possibilities to address the industry's digital needs.
The BVI has also implemented robust measures to combat financial crime and prevent various businesses, including those in the digital asset sector, from abusing the financial system.
For example, the Financial Investigation Agency and the Financial Services Commission have strengthened their internal expertise on digital assets and hired specialized analysts. These measures taken by the BVI aim to provide a secure and attractive option for international businesses.
Indeed, creating a secure center for DeFi businesses to operate is very important, but it cannot be done in isolation; international cooperation and global initiatives are equally critical.
Cooperation in the Caribbean and broader regions
The standards set by the Financial Action Task Force (FATF) for virtual asset service providers (VASPs) exemplify the international community's joint response to the rapid growth of the market and ensure that digital assets are not used for global money laundering and terrorist financing. As a leading member of the FATF's regional body in the Caribbean, the BVI actively promotes this progress. It will be crucial for each jurisdiction to take seriously the issue of providing a platform for the digital asset industry.
Of course, there is still much work to be done, especially at the regional level. The European (Markets in Crypto-Assets Regulation) (MiCA) has established unified EU market rules and has made progress in collaborating with neighboring countries. It sets an example for other regions, including the Caribbean, indicating that a unified collaborative approach is necessary to embrace financial innovation.
In October 2024, the financial services community will gather at the Caribbean Regional Compliance Association Conference to discuss how to establish innovative and moderate regulations that balance growth with safety. Over-regulation can stifle innovation, but well-considered regulation throughout the region should aim to prevent financial crime and effectively identify bad actors.
Addressing these issues requires a robust regulatory framework, technical infrastructure, and professionals capable of enforcing compliance. These resources must be shared across jurisdictions; otherwise, even the most well-designed regulatory systems may fail due to a lack of technical and institutional support.
In fact, the technological advancements in the financial services sector's ability to combat financial crime, particularly in digital assets, have significantly improved due to innovations such as artificial intelligence. While AI cannot fully replace human expertise, it can considerably reduce the time spent on repetitive manual tasks, allowing professionals to engage more in investigations, customer due diligence (KYC) processes, and communication with compliance personnel from other jurisdictions. Moreover, the ongoing importance of educating and training personnel in the regional financial services industry will not diminish due to technological advancements.
DeFi has enormous potential in the Caribbean. The entire region must remain committed to high standards of financial integrity and transparency. Otherwise, the region's efforts to create an attractive and secure business environment may fail.
Author: Elise Donovan, CEO of BVI Finance.
Related Reading: Intent-based Solutions Expected to Solve DeFi Liquidity Crisis
This article is for general informational purposes only and does not constitute legal or investment advice. The views, thoughts, and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views and positions of Cointelegraph.
