Smith: Quite a few of such applications involve the use of online
trading platforms, however, most online trading platforms are used to
trade various types of instruments. There have been a few proposals
for online cryptocurrency exchanges, however, with no regulatory
policy currently in place for such activity these proposals have not
moved forward—to CIMA’s knowledge.
Rivers: This is certainly an area that the government recognises is
here to stay to some degree. Not necessarily every player in the
market, we believe, will survive in the end but the technology, the
innovation that it brings will certainly be an area that we can’t afford
not to grapple with. We need to do it in very short order because the
world is moving on.
It’s creating an appropriate regulatory framework as Heather alluded
to, and also trying to solve those challenges more on a global scale.
Bodden: I would be surprised if there is anyone around the table
who has not been involved in a recent conversation relating to
cryptocurrencies, either a manager seeking to launch a digital asset
fund or some other subject relating to block chain technology. In
general the key concerns are similar for most of us and have already
been mentioned, specifically, valuation, existence, ownership or
custody, and investor due diligence in general.
The underlying technology was meant to be disruptive and provide
new ways for parties to transact with each other. We can agree it has
done just that. Those managers who are thinking how to incorporate
this technology in their platform, while maintaining the integrity of
their control environment, are likely those who will be successful in
attracting capital from traditional sources and therefore likely enjoy
some longevity in this space.
As a firm we continue to assess each opportunity presented to us,
however, like many, have questions we need addressed before we
move forward. As industry best practices evolve and our understanding
increases, I suspect this will change as we find ways to adequately
address the risks associated with these products in an efficient and
commercially reasonable manner.
Calleja: There are two separate conversations here. One is a fund
investing in a crypto asset, a digital asset and the other is an ICO and
using the technology to raise capital and whether or not there’s 1,500
ICOs right now, how many of those are securities, utilities, do they all
kind of fall into the security bucket.
If we compare it with a prospectus for an IPO where there’s a lot
of information disclosed and it’s regulated and you’ve already got a
company which is producing revenues and profits, we’re talking about
capital raising with a white paper. There’s obviously a different set of
risks with ICOs but I do think the technology behind it could be a big
opportunity for the jurisdiction.
There is buzz around tokenising real estate or digitising shares. For
the fund industry the opportunity is there to create a more efficient
product. Maybe there could be a way of creating a private blockchain
with accredited investors and certified digital IDs addressing AML/
KYC so you don’t have the onerous process where investors have
to go through repetitive AML/KYC and they can trade digital shares
within a private blockchain exchange.
Regulators need to figure out how they’re going to regulate the
exchanges if cryptocurrency is held in hot storage.
Pierce: There isn’t a week that goes by that we don’t have more
than one enquiry in the crypto space. Cryptocurrency funds are not
that interesting in some ways because it’s just another asset class
that somebody is investing into and the regulator can understand
that and get their arms around it. There’s likely to be some oversight
and most of the service providers that people are talking about
providing services to these funds are existing reputable providers.
“The downside risk of
technology is always the
gap between innovation and
implementation.” Colin MacKay
We’re seeing lots of activity in new formations and a few actual
launches, but we’ll see where that goes given the volatility of the pricing
which is in rapid decline at the moment. On the secondary point, on the
ICO side, that’s much more tricky, and requires a lot more consideration.
You will see what’s been said about it by the SEC, which means that it
is going to require regulation of some sort. Japan and other countries
have been more open, others have been more closed. I don’t think it’s
something that we can simply embrace wholeheartedly without fully
understanding the reputational implications for the jurisdiction.
Scott: That’s a great point and this is where Cayman continues to
play a leading role when we look at innovation. We have through
Cayman Finance a fintech innovation lab that has probably 20-plus
experts across the industry locally tapping in to all sorts of business
partners and experts globally, looking to feed in, looking at best
practices, looking at challenges globally. We also have subcommittees
specifically on digital funding and investing from a fintech perspective
and we now have a fintech compliance working group.
The collaboration across industry, and with government and the
regulator are strong points which have allowed us in the past to look
at new innovations but also be pragmatic leaders in that space and
that’s going to continue with this new technology as well.
Photography courtesy of Janet Jarchow, Better Angle Photography
13 CAYMAN FUNDS | 2018