| Traditional Finance |
DeFi | |
|---|---|---|
| Custody | Held by institution or custody provider |
Held directly by users in non-custodial accounts or via smart contract |
| Unit of Account |
Fiat Currency |
Denominated in digital asset or stable coin |
| Execution | Facilitated via intermediaries |
Facilitated via smart contract |
| Settlement | ~3-5 business days depending on transaction, during M-F business hours |
Seconds to minutes depending on blockchain, 24/7 operating times |
| Clearing | Facilitated via clearinghouses |
Facilitated via blockchain transaction |
| Governance | Specified by exchanges & regulators |
Governed by protocol developers & users |
| Auditability | Authorized third-party audits |
Open source code & public ledger, can be audited by anyone |
| Collateral | Transactions may involve no collateral, itermediaries take on risk |
Over-collateral generally required |
| Risks | Vulnerable to hacks and data breaches |
Vulnerable to hacks and data breaches of smart contracts |
What FinReg Has in Store for Q1 2019
We highlight what to expect this quarter and recap Q4 2018’s key regulatory developments. FinReg’s Q1 Game Changers:
- There will be no turn of the year respite from Brexit. Prime Minster Theresa May set a provisional date of January 14 for the previously postponed “meaningful vote.” This is just one week in advance of the January 21 deadline, which in the absence of an agreement, would leave us with a no deal Brexit.
- Final implementation of the EU Money Market Fund Regulation comes into force on January 21. This includes a restriction on “share destruction.”
- On March 1, the transition period ends for the New York State Department of Financial Services cyber security regulation, heralding in a higher standard that will likely influence future Federal US regulation. The SEC also named cyber security as a high priority for early 2019.
Key Developments from Q4:
- The Brexit process saw another delay in December. Given the deal was likely to be rejected by the House of Commons, Prime Minister Theresa May postponed the scheduled UK Parliamentary vote on her proposed Brexit deal with the EU. The vote is now set for January 14. More delays only increase the likelihood of a no-deal Brexit.
- In November, US voters put Democrats in charge of the House, creating a divided government with the Republican-led Senate and President Trump. Despite political divisions, the SEC’s regulatory agenda will move along in 2019 with rules for liquidity, cyber security, ETFs, and digital assets.
- In October, Hong Kong signed its fourth Mutual Recognition of Funds (MRF) agreement – this time with the UK. This establishes a framework to allow approved funds to be sold in one another’s market under a streamlined regulatory procedure.
Top On The Regs Posts of Q4:
- CBI Outsourcing Paper: Another Critical Piece of the Global Oversight Puzzle | Read More
- Ghost in the Machine: Financial Regulators Keep an Eye on AI |Read More
- Fortnite and Asset Management: More Similar Than You Think |Read More
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