2020 Annual Report

A WORLD RAPIDLY GOING DIGITAL Digital Assets Coming of Age Global Digital Finance Annual Report 2020

INTRODUCTION 16 The Roaring Twenties, Digital Assets, & Escaping the Dominant Logic of the 20th Century 4 A World Rapidly Going Digital Tim Grant, CEO, SIX Digital Exchange Foreword by Co-Chairs Lawrence Wintermeyer and Simon Taylor 17 The R3 CBDC Forum Todd McDonald, Co-Founder & CPO, R3 PATRON INSIGHTS 8 The Importance of Regulatory Collaboration Vivien Khoo, COO, 100x Group REGULATION & POLICY

9 Driving DeFi with Stablecoins 19 The Regulatory Landscape: Towards Regulatory Certainty Amy Luo, Senior Counsel & Paul Grewal, Chief Legal Officer, Coinbase Jeff Bandman, Board Member, GDF

10 Collaboration Models Form the Basis for Future Success 21 Moving Towards Comprehensive Approaches for Cryptoassets Martin Bartlam, Partner & Bryony Widdup, Partner, DLA Piper Lavan Thasarathakumar, Head of Regulatory Affairs – EMEA, GDF

11 Diginex: The First Digital Asset Ecosystem to be Listed on Nasdaq 22 Public-Private Partnerships and Global Standards for Virtual Assets Richard Byworth, CEO, Diginex David Lewis, Executive Secretary, FATF

12 The Global Digital Communion 23 The V20 Summit Jeffrey Saviano, Global Tax Innovation Leader, EY Anson Zeall, Chair, IDAXA & Lawrence Wintermeyer, Executive Co-Chair, GDF

13 Hogan Lovells Blockchain Hub 24 The FSB Landscape for Crypto & Digital Assets John Salmon, Partner & Global Head of Blockchain, Hogan Lovells Dietrich Domanski, Secretary General, FSB

14 China and Digital Currency Electronic Payments 26 The Digital Asset Tipping Point Elaine Sun, Head of Compliance, Huobi Heath Tarbert, Chairman & Chief Executive, CFTC

15 Beyond Skepticism and Towards Solutions 27 Creating a Global Hub for Digital Assets Michael Coletta, Head of Blockchain & Emerging Tech Innovation & Strategy, Richard Teng, CEO, ADGM Financial Services LSEG 28 Sustainable Finance Greg Medcraft, Director – Financial Enterprise Affairs, OECD

2 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 46 Global Leaders Townhall of Fame VOICE OF THE COMMUNITY 47 GDF Code Members & Partners Ecosystem 31 Money 2.0 Keith Bear, Associate Partner, Elixirr Consulting Limited, Michel Rauchs, Managing Director, Paradigma & Tania Ziegler, FinTech Benchmarking Specialist ADVISORY COUNCIL & WORKING GROUPS 33 Establishing Best Practices Kim Winding Larsen, President, ACI Financial Markets Association 50 Beyond the Codes Malcolm Wright, Chair, & Bryony Widdup, Secretariat of the GDF Advisory Council 34 Advancing Engagement with Industry at Domestic and International Levels 51 Working Groups: Custody Caroline Malcolm, Head of Global Blockchain Policy Centre, OECD Alexandre Kech, CEO Onchain Custodian, & Hervé François, Blockchain Initiative Lead, ING

35 Self-Hosted Wallets 52 Working Groups: KYC / AML Kristen Smith, Executive Director, Blockchain Association Malcolm Wright, CCO, 100x, Jack Gavigan, Product & Regulatory Affairs, Electric Coin Co., Dominic Gee, Advisor & Consultant 36 Digital Identities: The Cost of Waiting David Birch, Author and Advisor on Digital Financial Services 53 Working Groups: Market Integrity Chen Arad, Chief Operating Officer, Solidus Labs 37 The Defi Wave Jake Stott, Founding Board, dGen 54 Working Groups: Public Digital Currencies John Collins, Partner, FS Vector, & Lavan Thasarathakumar, Head of Regulatory Affairs – 38 The Year Digital Assets Became Essential EMEA, GDF Julien le Goc, Director of Policy, Diem Association 55 Working Groups: Private Markets Digitization Steering Group 39 The Global Standards Mapping Initiative Anthony Woolley, Head of Business Development, Ownera, & Lavan Thasarathakumar, Sandra Ro, CEO, Global Blockchain Business Council Head of Regulatory Affairs – EMEA, GDF

40 The Alchemy of Talent and Technology 56 Working Groups: Tax Christopher Holmes, Lord Holmes of Richmond Lisa Zarlenga, Partner & Co-Chair of Tax Group, & Krystle Gan, Seconded Counsel, Wells & Fargo

GDF EXECUTIVE REPORT TALENT & GOVERNANCE 42 GDF in Review Emma Joyce, Head of Community & Membership 58 Human & Financial Capital Abdul Haseeb Basit, Treasurer & Board Member, GDF 45 2020 in Numbers 59 Meet the Team 60 Our Code Members

3 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Foreword A World Rapidly Going Digital

including lockdowns, social distancing, and the important, but a survival tool. It has allowed wearing of face masks. Home working, and for communities to collaborate even when they are Lawrence Wintermeyer some home schooling, became the norm. separated. Executive Co-Chair & Guarantor GDF When GDF held a COVID-19 mini summit in Responding to Requirements March to convene members to share their We have seen the community respond to experience of working through the pandemic, the needs of the sector, demonstrated in the Simon Taylor there was already early evidence of Zoomitis delivery of the InterVASP Messaging Standards. Co-Chair & Guarantor as team members lost track of a fixed workday GDF Conversation on the status of implementation working from home. We continue to be vigilant of the Travel Rule kicked off in February at the and keep an eye out for community members FATF plenary at the OECD in Paris. The Joint who show signs of mental fatigue and stress Working Group (JWG) steering committee, as a result of these circumstances. We pay our comprised of leaders from GDF, the Chamber of The outbreak of the global pandemic created a respects to members of the community who Digital Commerce, IDAXA, Xreg Consulting, and humanitarian health crisis, which quickly led to have been severely affected and experienced technical service providers, led the discussion. an economic crisis of untold proportions, with loss. They presented the status of IVMS101 Standard, government bailouts and stimulus, and the race which they then approved in May. to deliver a vaccine. Thankfully, there is a light at the end of the tunnel for the pandemic with several The industry collaboration in developing March saw one of the most dramatic stock vaccines approved and the monumental job of IVMS101, along with the industry engagement market crashes in history with a 26 percent vaccinating the public in 2021. model supported by FATF, is groundbreaking. pull back over four trading days, taking with it IVMS101 was developed by the global industry safe harbor assets like gold and new assets like The change in our ways of working for us in an open source forum. It was produced in a crypto. Unemployment quickly hit record highs “digitalists” was much less difficult than for record 17 weeks and adopted by the industry and governments rushed legislation to print those working in more traditional sectors, many participants all within a 9-month period. This money to help citizens and businesses though of whom must report to a workplace to earn a demonstrates how effectively the crypto and the crisis, pumping liquidity into the system. living, if their sector is still functioning and they digital assets sector can come together to COVID-19 had arrived and brought with it are still employed. Digitalization was not just respond to regulatory requirements. profound changes to our global community

4 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 INTRODUCTION market cap of just under $1 Trillion. The crypto future infrastructure for the industry – across all 2020 saw Central Bank Digital Currencies derivates market exploded offering a range other industry sectors. (CBDCs) projects take prominence. The Bank of hedging instruments for crypto funds and of International Settlements (BIS) published sophisticated investors and is estimated to be 2020 showed us the importance of enterprise- research in August and identified 32 different double the size of the spot market. grade infrastructure in enabling the adoption CBDCs projects around the world, all intended of digital assets to unlock value in private to compliment cash. Regulatory focus on The DeFi market was quietly building markets. GDF members launched the Private stablecoins increased, with the Financial momentum in Spring and by August had a Markets Digitization Steering Group, focused on Stability Board (FSB) call for regulation, market cap of $7 billion, more than doubling developing a reference architecture and proof supervision, and oversight of “global to $16 billion by December 31st. In H2, GDF of concept for digital securities trading and stablecoins”. conducted a DeFi roundtable followed by a custody. The group consists of over 25 financial virtual conference to focus on the emerging top tier financial institutions, and highlights In July, GDF held its first ever conference DeFi solutions landscape, it’s architecture, GDF members’ ambitions to move the (virtually) with a stellar line up of members investor opportunities, and safeguards. The community to develop open source member- and community friends, central bankers, and GDF membership has launched a DeFi working led solutions beyond codes and interoperable regulators, to discuss the emerging state of group to further develop the “DeFi standards standards. digital coins and currencies. GDF published landscape” and extended the invite to the The Age of Public Digital Currencies: A Guide global DeFi community. Engaging with Regulators & to Issuance—a digestible account of everything Policy Makers you need to know to launch a public digital Keith Bear and Michel Rauchs’ Enterprise GDF convenes a quarterly Regulator Forum currency. Blockchain report for GDF identifies the for code, policy and framework purview. from important consolidation of the prominence over 30 regulators and agencies. The FSB and Stock markets recovered and boomed of the “Big 3” solutions: R3’s Corda; IBMs BIS continue to provide welcome read-outs at throughout 2020, and bitcoin hit record highs. Hyperledger, and Ethereum. It provides a GDF quarterly summits, which offer working Private market investors and institutions were framework architecture for the ecosystem and group members an open public plenary forum buying bitcoin, driving the price to just under identifying that the financial services sector for industry feedback on codes, standards and $30,000 on the 31st of December with a total leads the development of this domain - the papers.

5 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 INTRODUCTION GDF has responded to several regulatory 2020 saw member working groups deliver new GDF in Numbers consultations this year and has worked on codes, papers, and standards. We hosted more member-led advocacy initiatives across than 100 conference, webinar, and media events supranational agencies, jurisdictional regulators profiling members and the community. We ran Codes of Conduct 10 and central banks. In H2, the GDF team roundtables on cryptoassets and sustainable mobilized a patron member working group finance to provide input to the UK Fintech to focus on the technical work and advocacy Review, which yielded a positive response from for the EU’s Market in Crypto Assets proposal the UK Chancellor. Reports, Whitepapers, which appears to be the most comprehensive 6 & Taxonomies crypto and digital assets regulatory framework We continue to promote the engagement to be issued to date. As 2020 closes out, the between a highly mobilized community, members ready themselves to respond to regulators, and policy makers. The progress we the U.S. Treasury FinCen consultation issued are seeing across the sector is not simply fated. Community Members 360 at the end of December, which raises issues It is the result of the community’s persistent with self-hosted wallets and the threshold for leadership in innovation and conduct, and transferring money. advocating open collaboration between key Working Group stakeholders. GDF has created an exceptionally 700 GDF hosted a roundtable for leading FinTechs well-placed and globally recognized forum for Participants + offering cryptocurrencies and derivatives enabling this collaboration. to retail customer to focus on the need for better consumer protection and investor In an extraordinary year of many dimensions, self-certification. Following the FCA’s ban 2020 will be remembered in our community as The work GDF conducts through its on retail market access to crypto derivatives the year digital assets came of age in a world members and participants is crucial as a scheduled to take effect in January 2021, the rapidly going digital. platform to shape and be a voice in the GDF community will lead further advocacy and safe growth of digital assets. work on retail standards and certification will be developed in the new year.

GDF Member Survey 2020

6 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 INTRODUCTION PATRON INSIGHTS The Importance of Regulatory Collaboration Sustaining Industry Leadership

It has been an important year both for 100x proactive engagement with regulators so that At 100x, we are committed to even more Group and the whole industry. We witnessed a as many people as possible can benefit from engagement because the future depends on remarkable bitcoin rally, sustained our business the services that our industry can provide. positive and earnest collaboration between amid lockdowns and travel restrictions, and Practically speaking, for 100x, being licensed in both regulators and industry, and strengthening adapted to regulatory efforts to help manage one or more IOSCO jurisdictions is an essential regulatory understanding of virtual asset the transformative technology to which component for a sustainable future, but further service providers. We must continue advocating we are all dedicating our professional lives. regulatory engagement is required. for common-sense, right-size regulation to Every successful company goes through protect users, while keeping bad actors out of different phases of transformation, and this The overarching principles of GDF and the system. And most importantly, we need year has been crucial for 100x in redefining initiatives like the V20 Summit provide a great to explain the incredible benefits of a world our objectives and priorities around one roadmap for engagement with regulators and with more digital finance, lest we collectively overarching goal: ensuring our industry the industry. In my mind, it’s success boils down accept the limitations inherent to our traditional leadership is sustainable in an increasingly to making ourselves visible, accessible, and systems. regulated world. accountable, so that our industry isn’t as easily caricatured as being in the shadows. We look forward to working with all of you We are in pursuit of much more than world to make GDF an ever more present voice class security, technology, and product Many observers are aware of our current in representing the industry as we look to innovation for the BitMEX platform. From a regulatory challenges, and our commitment establish new standards of collaboration and macro point of view, 100x strives to bring to developing a robust compliance culture consultation between VASPs and regulators in analogue financial services into the digital age. and program started way before 2020. The this crucial time for our industry. This requires a willingness to be an advocate years of work in developing what we believe for our users and our industry to audiences far to be the right standard of what is required and wide especially sceptical ones and to listen is clearly visible. The recent hiring of Chief as well. Compliance Officer Malcolm Wright, Chair of Vivien Khoo the GDF Advisory Council, further reinforces Chief Operating Officer Credible leadership of this kind is enabled by our commitment in this area. 100x Group upholding a gold standard of compliance and

8 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS Driving DeFi With Stablecoins

Stablecoins are clearly meeting their moment. underbanked to participate in financial markets, For this reason, stablecoins such as USDC are Since the beginning of 2019, total stablecoin put their assets to work, and access high yields. an increasingly popular token of choice in DeFi, volume has increased from $2.6B to over and form the foundation of the whole system. $27.6B. What is equally clear is that most of Most DeFi applications are run on Ethereum, Given their inherent price stability and (often) that growth can be directly attributed to the the most actively used blockchain in the world, deep liquidity, stablecoins allow participants to proliferation of Decentralized Finance. and rely on an ERC-20 token. Participants minimize market volatility risk (as compared to can deposit their tokens directly into the DeFi other ERC-20 tokens), and are a common base DeFi is a broad term used to describe financial protocols or create liquidity markets on an in AMMs like Uniswap pairs. In fact, stablecoins applications run on blockchain networks using automatic market maker to earn fees or yield on are the second, third, fourth, sixth, and seventh smart contracts. These applications have not their deposits. Although most DeFi protocols largest volumes on Uniswap. only replicated traditional financial activities allow participants to redeem their assets at any such as borrowing, lending, investing, and time, some have restrictions or limitations on Stablecoins have tremendous potential to savings, but also spawned innovative concepts withdrawals. In either case, while the tokens are disrupt traditional systems in a number of ways. such as yield farming and liquidity mining. “locked up,” they are subject to market volatility DeFi is just one example. As additional use Anyone with an internet connection can access and can lose (or gain) value if the price of the cases surface – and they undoubtedly will – these protocols, allowing the unbanked and underlying assets change. expect to see stablecoins continue their rapid growth.

Amy Luo Paul Grewal Senior Counsel Chief Legal Officer Coinbase Coinbase

9 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS Collaboration Models Form the Basis for Future Success

Sound collaboration agreements are at the heart in progress. There are certain inherent tensions Sound collaboration between tech and finance of FinTech. Arrangements which capture the in establishing collaborative working groups is crucial to the success of the industry, but it essence of commercial collaborative intent can between commercial competitors and consortia is a process that is still being established. The be complicated to achieve. However, models arrangements are often criticised as suffering commercial realities of these relationships require to support longer-term relationships between from an inability to make decisions. There are technical understanding, extensive documentation, FinTech and banking are evolving. also potential anti-trust concerns. Balance and risk mitigation and dispute resolution mechanics compromise have to be found between the co- that are flexible enough to operate in the ever- To successfully document collaboration, Joint ordination required for effective interoperability changing regulatory landscape. Once the parties Venture (JV) arrangements are often used, and the need to leave sufficient flexibility to have a clear understanding of the objectives of providing for shared ownership of an entity or a enable competition to flourish. their collaboration, using an experienced legal team project. The terms of the agreement will cover to implement the terms will significantly ease the certain essential provisions, including capital Beyond JV arrangements, we have seen process. Commercially-minded and adaptable legal contributions, allocation of liabilities, valuation increasing development in collaboration through advisory teams such as those at DLA Piper can help matters and determination of profit-sharing, as services arrangements, including banking-as-a- parties to navigate these new business relationships, well as governance, exclusivity, confidentiality, service and software-as-a-service frameworks supporting long-term collaborative success. tax matters and more. That said, traditional JV and white-label banking. These structures enable structures may not always offer that which is licensed entities such as banks to work with required for successful longer-term collaboration FinTechs bringing technology and software, between parties—lack of proper sponsoring, or usually framed as an “outsourcing” arrangement. a failure to integrate may result in disintegration The contractual basis is absolutely key and the Martin Bartlam once the initial excitement has faded. regulatory implications for the regulated party Partner DLA Piper have to be accommodated in a detailed manner, Multi-party consortia JVs have more recently but with sufficient flexibility for future innovation. come to the fore in the digital finance space. We have also observed a steep increase in M&A These generally involve a number of institutional in the fintech space through 2019 and early incumbents often proposing to co-ordinate the 2020. To properly achieve the parties’ intentions, Bryony Widdup interoperable development of a market solution these deals require a clear understanding of the Partner alongside FinTech and other technology service objectives of the acquisition and an experienced DLA Piper providers. However, the approach is still a work legal team to implement the terms.

10 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS Diginex: The First Digital Asset Ecosystem to be Listed on Nasdaq

In 2020, Diginex launched EQUOS.io, an the significant opportunity that is seen in crypto institutional-grade cryptocurrency exchange built derivatives and digital asset securitization. for professional and individual investors alike. In developing the first pure play digital asset With Diginex’s listing on Nasdaq ($EQOS) in ecosystem, we are excited to see continued October of 2020, EQUOS became the first digital traction for our capital markets offering (EQUOS asset exchange to be listed in the U.S., under Capital), multi-venue algo trading platform the oversight of the Securities and Exchange (Access), asset manager (Bletchley Park), and Commission. both cold and warm custody solutions (Digivault).

Being the first Nasdaq-listed exchange EQUOS The Digital Asset opportunity was massively operates to the highest levels of transparency and expedited in 2020, with the advent of a global regulation, but also reflects our dedication to be a pandemic and governments’ fiscal and monetary source of trust and credibility for our clients. responses. In what is set to be a defining year for the industry, we look forward to working with our Diginex executed on a significant product partners and regulators to ensure the continued roadmap in 2020; having launched the EQUOS evolution of the asset class as it transforms the Exchange, developed an independent spot financial services industry. trading market serviced entirely by external With continued momentum for institutional market makers, rolled out a BTC Perpetual participation, Diginex is well positioned to Futures contract with fair and transparent support the ecosystem through its transition liquidation processes, and announced the toward mainstream adoption. pending introduction of Borrowing & Lending capabilities to the product suite. Richard Byworth Looking ahead to 2021, Diginex will continue CEO to focus on developing institutional-grade Diginex infrastructure and product build-out to address

11 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS The Global Digital Communion

The global pandemic has revealed fissions and However, as rapidly as technology is advancing, A global digital communion would have fractures in the global technology infrastructure associated governance systems have been dramatic, positive effects on our communities significantly impacting the ways in which we slow to adapt. We face a dire need for as we emerge from the pandemic. Continued live and work. Despite advances in digitalization new governance models, with smart policy advances in digital technology are needed, and the rapid pace of technology development, frameworks, propelled by a variety of actors, for sure. But we must also address this stark many aspects of business - and society more across government, industry, philanthropies, global governance gap to truly benefit from broadly - remain largely analog, or at best are academics, multilateral organizations, and civil digitalization. on the bottom rung of the digital ladder. society. A new global digital communion is needed, as no single institution can govern the To vastly improve the global digital landscape, global development, deployment and adoption we need striking advances in digital public of digital public goods. Jeffrey Saviano goods: the open-source software, data Global Tax Innpvation Leader methods, standards and protocols benefiting This is especially true in light of the plethora EY all nations and people. There is no shortage of obstacles present, including material issues of needs to address in the world, across with intellectual property, finance, data privacy/ financial inclusion, digital identity, healthcare, security, and new incentive mechanisms to education, and tax/fiscal systems, to name entice multi-stakeholder engagement with new a few. Digital public goods are by definition digital technology systems. Successful digital reusable, not deployed by states in solitude systems adoption will rely on more than the and are increasingly solving network problems hand of government mandating stakeholder with technology that is both innovative engagement, but it will offer new ways of and advanced. These emerging digital working – and living – that invite participants systems serve the interdependency of multi- eager for a seamless digital experience. stakeholders, reflecting important notions of mutual technology reliance.

12 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS Hogan Lovells Blockchain Hub Your global guide to developing regulatory requirements within the financial services industry sector & beyond

Blockchain technology could revolutionize While the benefits of blockchain technology Use the Hub to: supply chains, agreements, contracts, outweigh the challenges, the legal challenges • Keep up to date with the latest legal and currencies, and more. With the Hogan Lovells cannot be ignored and will need to be regulatory developments Blockchain Hub, you can take advantage of thoughtfully considered and addressed • See where blockchain is shaking up the technology’s huge potential and disruptive promptly. Many of these challenges stem industries impact, while avoiding falling foul of ever- from new and evolving multi-jurisdictional • View the legal positions and restrictions for developing regulatory and legal requirements. regulations. Governments adopt individualized, cryptocurrency and the FATF travel rule in unique regulations on blockchain and digital various countries The finance industry is arguably one of the assets, such as GDPR, and these will affect • Compare regulatory developments sectors to be the greatest beneficiary of blockchain configurations and how you conduct across the world and see how regulatory blockchain technology. With characteristics business domestically and globally. approaches are evolving over time of an immutable ledger, real-time tracking, • Create bespoke reports with developments and a single version of the truth, it is ideal for Our Blockchain Hub and lawyers can assist across multiple countries the future of the financial services industry. financial services industry players in navigating • Access useful blockchain resources, Some of the ways blockchain technology can the regulatory landscape and latest legal including reports, in-depth articles, and support financial services companies are in developments, ensuring that efforts and more the exchange of cross-border payments and adoptions are compliant with any current and P2P transfers, securities trading, Know Your future regulatory and business needs. Customer – client identity verification, record- keeping, and crowdfunding, among others. The The Blockchain Hub covers: Explore the Hogan Lovells Blockchain Hub here immutable ledger will be able to trace every • 300+ regulators transaction and be able to ascertain what is • 120+ jurisdictions and supranational valid and invalid. At the same time, it will be organizations able to prevent the duplication of records and • 20+ applications, topics, and industry John Salmon Partner & Global Head of Blockchain operate at a speed the industry has yet to sectors experience or truly monetize on. Hogan Lovells

13 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS China and Digital Currency Electronic Payments

COVID-19 has recalibrated every aspect of our The pandemic has triggered another significant daily life. With the conversion from offline to question for finance: the use of digital assets online, never have digital payments seemed as a safe haven for currency manipulation more important. As studies around the world and depreciation. March 2020 saw the Fed suggested that COVID-19 could survive on announce an unlimited QE plan to support the banknotes for up to four weeks, we saw the markets by buying back the Treasury bonds acceleration of the schedule of launching and mortgage-backed securities. Ever since, Digital Currency Electronic Payment (DCEP) USD has depreciated substantially. Bitcoin from governments around the world. was handed the opportunity to showcase its

benefits over central bank-controlled money. Watch Elaine Sun, Huobi, speaking on CBDCs at or China’s DCEP has already launched pilot tests With its tokenomics scripted in the source code, Global Digital Currencies Conference. in selected areas. The government recently its transparency, and anti-inflation properties, distributed 20 million yuan (around 3 million interest in the asset increased and this year USD) worth of digital currency to 100,000 saw Bitcoin break the $20,000 USD barrier in people in Suzhou via lottery, allowing it to be December. spent on JD.com’s shopping platform. Before Elaine Sun Head of Compliance that, 10 million digital yuan was distributed The trend of digitalization is irreversible, and is Huobi to 50,000 people in Shenzhen via lottery, having an impact across financial systems. From to be spent at over 3,000 merchants in a retail perspective, digital assets as a payment local supermarket and pharmacies. With the tool provides a natural foundation for our new successful soft launch of China’s DCEP, China is digital world. From an institutional point of one step closer to the cashless society. view, we expect the looming economic shifts of 2021 to further test the financial benefits of cryptocurrencies.

14 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS Beyond Skepticism and Towards Solutions

The COVID pandemic brought important pause The debate between traditional and model of where and how incumbents and and perspective across the board, and while DeFi continued to develop. However, the new entrants are best poised to create a new governments, businesses, and citizens looked fundamental questions still remain the same: future—a future that benefits not only from of for any solution to the litany of issues faced, What legal rights does this asset confer the open access that the technology brings, but technology and innovation came bubbling to upon the holder? How are investors able to also from incumbent experience in the creation the surface with solutions. Outside the context accurately understand their risks in holding of fair, orderly, and scalable markets, and from of the pandemic, 2020 was already set to these assets? How do we ensure fair and equal the new entrant push to innovate and offer be a big year for blockchain’s real world use dissemination of information to investors to services to customers through the expansion of cases, developed in an ambiguous regulatory understand their risks? Can this actually scale the platform business model. environment and matured in a more regulated without introducing new risks? world. With the emergence of Libra (now Diem), the rapid maturity towards real CBDCs, The biggest concerns or perceived risks of growing regulated products on cryptocurrency, yesteryear have been reframed in the context the increasing regulatory clarity had poised of the pandemic. Technology is not viewed Michael Coletta 2020 for scalable progress. with skepticism, but rather as the solution to Head of Blockchain & Emerging real problems. We are finally at the tipping Tech Innovation and Strategy 2020 has been a decisive turning point for point, where we can clearly see through LSEG blockchain and crypto assets, especially, one the technological fog created out of initial of the most significant being the European blockchain hype. We also understand where Commission’s proposal for a digital asset blockchain provides novel solutions and where equivalent of MiFID – MiCA. We are seeing the it does not. shift in attention and seriousness by national governments and their respective competent If 2020 has left us with anything, it is that authorities. digital assets are here in that we can see a

15 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS The Roaring Twenties, Digital Assets, & Escaping the Dominant Logic of the 20th Century

I remember saying at the end of 2019 that I So far, so good. After 2020 I am delighted were available at the time. As we approach was excited that we were now entering into the to confirm that we are well on track. Having the second quarter of the 21st century, many roaring twenties and that I could see a world of been in the institutional blockchain/DLT and of these 20th century dominant views are no promise and significant advances that have the digital asset space now for over 5 years, I longer relevant and often simply fly in the face opportunity to change the way we do things would rate the industry as a whole reasonably of progress. for decades to come. highly for driving towards change. Technology maturity, regulation, investment, commitment, Every one of us has to understand what it Well, COVID kind of took the edge off that commercial models, standards, and stated means to move into a 21st century mindset and one. But coming into 2021, I hold form on my strategic intent have all progressed to the point leave our 20th century mental models where assertion from one year ago. where the pieces of the puzzle are coming they belong as relics of the past. This is our together, which bodes well for a decade that greatest challenge and if we can conquer it Our motto at SIX Digital Exchange is “Grand really should be roaring. then it will lead to truly roaring twenties and Ambition. Big Impact. Small Steps.” The Grand the achievement of our Grand Ambitions. Ambition and strategic intent is to build a There is one key ingredient that, in my opinion, global liquidity network for institutional digital needs to be addressed in order for us to assets. The Big Impact that we can generate progress further. And that ingredient is mindset. if we get this right has the potential to make a In crude terms, we need to “getting out of our difference to how corporations, governments own way.” The major impediment to progress is Tim Grant and individuals engage with institutional being in the right frame of mind as an industry CEO capital markets, to democratize access to new to allow progress to happen. The dominant SIX Digital Exchange products and services, and to redefine how logic that came from the latter part of the capital and liquidity are formed. We also know 20th century was driven by the social, political, that in order to achieve this, we need to deliver economic, regulatory and, crucially, technology value to the industry in Small Steps rather than choices that we collectively made and that try to boil the ocean.

16 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS The R3 CDBC Forum

2020 was the year that digital payments on currently kicking-off work with the Banque de ledger moved into the global mainstream. France and anticipate many more projects in We have long recognized the potential of the coming year. enterprise blockchain to be used in highly regulated sectors and built Corda with that With these projects in mind, this summer specific purpose in mind. Italy’s Spunta Banca we brought together the public and private DLT project, which went live this year, is a sector to launch a CBDC working group that great example of where blockchain is providing provides a forum to share learnings on CBDCs value, with 100 banks now using the service and its deployment. This work will continue to manage all domestic interbank payments. throughout 2021, and has engaged over 100 Seeing the speed and scope of developments entities, including 30+ central banks and a in Central Bank Digital Currency (CBDC) strong mixture of private and public sector projects points to even greater potential. organizations. It has been fantastic to work alongside GDF, as well as the likes of BIS, World R3’s Corda platform has been used in CBDC Bank, IMF, US Federal Reserve Board, People’s projects for some time – starting with Project Bank of China, Bank of England and many Jasper in Canada in 2016 and expanding to others. multiple projects with central banks in the APAC region, including Singapore, Thailand, 2021 will undoubtedly be a year of significant and Hong Kong. 2020 has seen us engage progress for CBDCs, and we look forward to with the Swiss National Bank and the Swiss continuing to play a critical role in bringing Todd McDonald Digital Exchange in their wholesale project, and this technology one step closer to widespread Co-Founder & CPO Riksbank gave us our first opportunity to work adoption. R3 on a retail CBDC – the e-krona. We are also

17 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 PATRON INSIGHTS REGULATION & POLICY Jeff Bandman Board Member The Regulatory Landscape GDF Towards Regulatory Certainty

In last year’s annual report, I mused that 2020 and various aspects of finance, from welfare doubled down with a legal interpretation might finally be the year that saw institutional systems to business support loan programs. supporting payments using stablecoins investors move into the cryptoasset space, This has accelerated digital finance programs, or blockchain network nodes. The SEC asking ‘what would have to happen to promote including the interest in Central Bank Digital established a long awaited safe harbor for confidence and adoption?’ Currencies and stablecoins. broker dealer custody of digital assets, while in the same week launching enforcement action Could it be that a global pandemic was the Alongside DeFi’s explosion and Bitcoin’s rise accusing Ripple for years of offering XRP answer? in value, institutional interest and activity as an unregistered security. Meanwhile, the has flourished, and regulatory attention has European Commission released its framework Troubling though that may seem, the impact followed. In the U.S., the OCC gave clarity for Markets in Crypto Assets (MiCA). In Asia of global lockdowns on individuals, businesses over the ability of federally chartered national the BIS launched two Innovation Hubs in Hong and fiscal policy have forced us to reckon banks to provide digital asset custody and Kong and Singapore, while China continued to with shortcomings of present technology hold deposits that underpin stablecoins, then develop and publicly tests its digital Yuan, and Japan continued to enhance its digital asset investor protection safeguards alongside broad

EU operation of a state-authorised self-regulatory organization. ASIA

USA 2020 has seen a continuation of the trend UK Middle East towards regulatory certainty. Though not always in the direction industry participants may hope for, the clarity that these announcements provide brings a legitimization, promoting forward looking certainty and broader adoption.

Top Jurisdictional Priorities of the GDF Community GDF Member Survey 2020

19 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY Top 5 Regulatory Challenges GDF Member Survey 2020

#1 #2 #3 #4 #5

Inconsistent or unaligned Lack of clarity on Not all market actors Ability to meet Limited engagement cross-border regulatory regulatory perimeter are regulated, creating regulators requirements by regulators with guidance commercial challenges industry to partner/collaborate

Regulatory Harmony However, the outgoing US administration this the pandemic, we enter 2021 with far more The pandemic has also highlighted the extent December proposed to lower the travel rule regulatory clarity, institutional certainty, and to which activities throughout all industries threshold to US$250, and to extend certain broader adoption than ever before. Whether are cross-jurisdictional, and that regulatory obligations to self-hosted wallets. What remains we saw this progress because of the global harmony is key. to be seen is whether this will lead to a new pandemic or in spite of it, we may feel positive consensus or alternatively to an extended about the current regulatory landscape, GDF has always focused on enabling a global period of divergence. and indeed GDF’s role in supporting the approach to digital assets. Our quarterly collaboration between industry and policy Regulator Forums bring together a core of While we have seen progress from multi- makers. 25-30 regulators from around the world to jurisdictional authorities such as FATF and exchange updates on their current focus. the European Commission, 2021 awaits major political transitions—whether Brexit or the new In late 2019, the narrative seemed to be US administration—which may also have an that international consensus on Anti-Money impact on regulatory harmony. Laundering regulation for cryptoassets had been reached, and the focus appeared to turn Notwithstanding these shifts in global political to implementation of the consensus measures. structures, and the economic impact of

20 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY Lavan Thasarathakumar Head of Regulatory Affairs–EMEA Moving Towards Comprehensive GDF Approaches for Cryptoassets

2020 will be remembered for a number and services providers, delineating different rest of the world will regulate cryptoassets. We of things, but from a crypto-regulatory regimes for asset references tokens, e-money await to see which jurisdictions will follow suit, perspective it will be remembered as the year tokens and an ‘other’ category. and which will diverge. that things got real in Europe. While this is certainly welcome, there are a few To scrutinize the proposal and understand the As the shockwaves of Libra (now Diem)’s issues that have been identified. The approach impact this legislation will have on industry, announcement continued to reverberate across taken by the Commission seems to shoehorn GDF put together a closed-loop working group the continent, European Finance Ministers existing cryptoassets into a similar framework comprised of Advisory Council and Patron came together to denounce those wishing to used for traditional financial services. The members. We will continue to engage with the issue private currency, stating that currency doctrine of ‘same activity, same risk, same European Institutions over the course of the issuance is the sole purview of the European rules has been applied, and it feels as though legislative period to ensure the community’s Central Bank. At the same time, Central Banks there has not been sufficient thought put into interests are represented. supercharged their efforts for Central Bank whether what is being conducted is actually the Digital Currencies (CBDCs). same activity or the same risk. As a result, we have a piece of legislation that does not quite However, the most significant moment was the fit the innovation of the asset it is looking to announcement of the Markets in Crypto Asset regulate. Regulation (MiCA). GDF is a great source of industry The significance of MiCA is clear:, no other commentary, advocacy, and thought Described as a seminal moment for the jurisdiction has taken such a comprehensive leadership. Working Groups setting cryptoasset industry, MiCA attempts to bring approach on how to regulate crypto. The out industry theme responses certainty to an industry bereft of clarity. MiCA Commission has first stab at a blank canvas. stimulates discussion, driving direction looks to cover all cryptoassets that does There is therefore is a strong possibility that and resolution. not already fall within the remit of financial whatever comes out of this influences how the legislation, establishing obligations for issuers GDF Member Survey 2020

21 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY Public-Private Partnerships and Global Standards for Virtual Assets

The Financial Action Task Force (FATF) leads Ministers and Central Bank Governors in These are exciting times. The FATF is clearly global action by governments on money so-called stablecoins. committed to public-private partnership and laundering, the financing of terrorism, and the making sure its standards are fit for purpose, fit proliferation of weapons of mass destruction. However, it remains early days. To ensure for the future, and can be implemented on the Its global standards apply to the activities that regulatory alignment, all countries must ground so that technology can be the game- generate these risks, and the same rules apply implement the FATF Standards as a priority. changer it needs to be. to the same activities. The FATF is monitoring progress, assessing implementation by governments and publishing In 2019, these risks resulted in new global the results. In 2021, industry needs to use standards for virtual assets. The risks are real, the innovative solutions being developed to as highlighted by the 2020 FATF red flags implement the travel rule fully and effectively. report, and continue to evolve, with virtual In June, the FATF will report again on progress, assets used to hide the proceeds of criminal through a second 12-month review, and with exploitation of the response to the COVID-19 a focus on key issues such as peer-to-peer pandemic. transactions and decentralized finance.

FATF’s 12-month review report in June 2020 The FATF Standards are technology neutral, showed that many governments had already but the FATF is not technology silent. There implemented the new global standards, while in are opportunities as well as risks in new Watch the GDF Travel Rule Summit the private sector, 2020 saw the development technologies. It is important to target harden of technology and protocols for compliance businesses against these risks in order to help with the ‘travel rule’. At the same time, the realized the opportunities that technology can virtual asset sector has continued its rapid bring, from virtual assets to digital identity. David Lewis pace of change and innovation, keeping the Continued public-private partnership is critical Executive Secretary attention of global policy makers, including and GDF has successfully helped capture and FATF accelerating the interest of G20 Finance communicate the voice of the sector.

22 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY The V20 Summit The Road to Meaningful Regulation

A Unified Voice engagement on the Travel Rule, G20 ministers would By enabling open dialogue and encouraging be advised to seek to engage a wide selection of mutual respect, the V20 is on the road to creating In advance of November’s G20 Riyadh Summit, the DeFi specialists as early as possible, ensuring that meaningful compliance. There is still a long way to V20 Summit convened crypto industry leaders, the conclusions are drawn from fact-driven evidence. go, but what an outstanding start in just over a year. Financial Action Task Force (FATF), and industry regulators in a three-day virtual conference to share The DeFi sector will also have to step up the maturity G20 ministers might wish to take note. Regulators views on the progress of the implementation of the of its engagement with policy makers and regulators. should increase their industry engagement and make Travel Rule, and other challenges that the industry is Rolling out the same platitudes as the early days of room in their digital sandboxes to scale up the virtual facing. the blockchain is unlikely to influence policy. assets sector—a sector that offers great promise for financial services in the 21st century. A common criticism from regulators is that the Above all, the V20 is a great example of industry- virtual asset industry is a disparate group of factions. regulator collaboration, and the agile execution of It was a pleasure to co-host the V20 Summit with For a sector that now serves a global client base policy in the virtual asset sector. IDAXA this year, and we look forward to further across many asset classes, this is a slightly glib industry-wide collaboration in the future. assessment given the diverse and competitive nature of digital finance. Meaningful Compliance The principal focus on the development of policies, Read more on the success of V20 here However, the industry heard this criticism and perimeters, and regulations is often overly consumed responded. Following the inaugural V20 Summit in with a shift of responsibilities – to be able to hold Osaka last year, the industry worked to deliver the a single entity or entities to account for culpable IMVS101 data payload standard, demonstrating that wrongdoing, liability, and punishment. Anson Zeall they can come together with a unified voice when Chair they need to. This year’s V20 Summit showed the Every now and then, the development of new (and IDAXA & Convener of the V20 Summit same commitment. innovative) policies, perimeters, and regulations result in a meaningful form of compliance that is That said, a few challenges remain. Amongst other focused on risk transparency for financial services Lawrence Wintermeyer products that work for everyone. points of discussion, the rapid growth of DeFi this Executive Co-Chair year has brought the market under the gaze of GDF authorities. Considering the success of industry

23 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY The FSB Landscape for Crypto and Digital Assets

Technological innovation in the financial sector that have the potential to reach global scale. offers the potential for significant benefits, but While such instruments could enhance the also brings about new challenges. The Financial efficiency of the provision of financial services, Stability Board (FSB) has been committed to they could – if widely adopted -- become developing a deep and early understanding systemically important in one or many of how innovation is transforming financial jurisdictions, including as a means of making institutions and markets. Crypto assets have payments. As “stablecoins” continue to evolve, been a key part of this work. comprehensive and effective oversight of such instruments at the national and international Since 2018, the FSB has been monitoring the level will be of the utmost importance. financial stability implications of crypto-asset markets. This monitoring considers for instance The FSB has issued high-level recommendations risks arising if crypto-assets became widely for regulatory, supervisory, and oversight used in payments and settlement; risks from responses to address the financial stability market capitalization and wealth effects; risks risks that global “stablecoins” may pose. arising from exposures of financial institutions; The recommendations call for regulation, and reputational risks to financial institutions supervision and oversight that is proportionate and their regulators. To this day, the FSB to the risks and require market stakeholders believes that crypto-assets have not posed to adhere to applicable regulatory standards a material risk to global financial stability. before commencing operations. Further, they However, the speed of market developments promote the implementation of: comprehensive underlines the need for continuous vigilant governance and effective risk management; monitoring. robust systems for handling data; appropriate recovery and resolution plans; appropriate Dietrich Domanski One area of particular focus of the FSB work disclosure of information to users and relevant Secretary General has been so-called “stablecoins” instruments stakeholders; and legal clarity on redemption FSB rights.

24 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY Through this work, the FSB aims to address the development and financial inclusion. The risks of global “stablecoins” while preserving roadmap, organized along 19 Building Blocks, the potential benefits. By applying the lens provides a high-level plan, which sets ambitious of “same activity – same risk – same rules” but achievable targets and milestones, to independent of the underlying technology, the enhance cross-border payments in both the recommendations support innovation. They also retail and wholesale space. provide flexibility for jurisdictions to implement domestic approaches, while stressing the The involvement of the private sector, sharing value of cooperation and coordination among their insights and practical expertise, as well as authorities across sectors and borders. During delivering change, will be key to support the 2021, standard setting bodies will consider practical implementation of the roadmap. The whether and how to update international work under each building block will consider standards in light of the FSB recommendations how to most effectively involve the private to ensure that risks are adequately mitigated. sector. With its comprehensive set of concrete actions, the roadmap has the ability to offer The work on “stablecoins” has been better, state-of-the-art payment services to use incorporated into the comprehensive FSB on a global scale. roadmap to enhance cross-border payments that G20 Leaders endorsed in November 2020. The goal is to make cross-border payments faster, cheaper, more transparent and more inclusive, including remittances, while maintaining their safety and security. Achieving this goal would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global

25 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Regulation and Policy The Digital Asset Tipping Point

Malcolm Gladwell said, “A tipping point is that First and foremost, classification of digital Here in the United States, it is critical that magic moment when an idea, trend, or social assets must be addressed. Given digital assets’ federal and state regulators work together to behavior crosses a threshold, tips, and spreads unique characteristics and continuous evolution, create a digital assets regulatory framework. like wildfire.” this is not an easy task. I believe the next This will provide more certainty for the Congress should work to provide greater clarity marketplace while also mitigating any risk We are at a tipping point with digital assets. on classification, which will in turn clarify the or regulatory concerns for more traditional applicable regulatory authority for this market. financial markets. Digital assets and their underlying technology are pushing conventional boundaries. And But legislation takes time. Regardless of where we sit around the globe, the innovation in this area continues apace. we must acknowledge this evolving market and Digital asset markets continue to grow, despite This “tipping point” has shown us that we must act. We must anticipate the future. Recognizing the pandemic. At the same time, stablecoins act now to address the growing marketplaces this moment in time—this “tipping point”—is the and Central Bank Digital Currencies markets of crypto. And each regulator must not act in a first step. continue to grow because of the pandemic. vacuum, focused inward on its own jurisdiction. International coordination is essential. During my tenure at the CFTC, I’ve seen firsthand the extraordinary growth of the digital Developing a principles-based approach to Heath Tarbert asset markets and the challenges these markets digital assets that can be applied globally is Chairman and Chief Executive encounter due to regulatory uncertainty. imperative. A principles-based approach will CFTC provide a flexible and effective framework Despite the small size of digital assets for innovation to thrive, while also reinforcing derivative markets relative to the other asset market integrity and consumer/investor classes we regulate, our regulatory structure protection. needs to be agile and responsive to address this rapid innovation.

26 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY Creating a Global Hub for Digital Assets Abu Dhabi Global Market

The Abu Dhabi Global Market (ADGM) has ADGM’s evolution into a leading global hub set new global standards when it comes to for digital assets is closely aligned with the fostering a holistic ecosystem that encourages UAE government’s commitment to introducing innovation in the financial industry. One of innovative technologies across the country, and ADGM’s landmark achievements in this area is lays a strong foundation for broader economic its regulatory regime for virtual assets. benefits arising from the progressive regulation of digital assets. Virtual assets have been at the forefront of regulatory agendas around the world in recent ADGM’s regulatory regime for virtual assets years. With global investors keen to diversify addresses a number of key risk areas with into new asset classes that comply with robust particular emphasis on the risks relating to Watch the Global Leaders Townhall with regimes and uphold high standards, regulators AML/CTF, consumer protection, technology Richard Teng, CEO of ADGM have had to adapt at pace to ensure adequate governance, exchange operations and the yet forward-looking provisions, and ADGM has safeguarding of investor assets, which is taken a leading stance with its digital assets comparable to the regulation of conventional framework. counterparties.

Having introduced one of the most The successful introduction of tailored, Richard Teng comprehensive, transparent, and robust innovative regulation for new asset classes, CEO virtual assets regulatory frameworks in the coupled with the establishment of a strong ADGM Financial Services world in 2018 that enables firms to operate FinTech regulatory regime, makes ADGM a Regulatory Authority as fully licensed multilateral trading facilities, natural home for operators of virtual assets custodians or intermediaries, ADGM is widely businesses looking to tap into the market considered a destination of choice for virtual opportunities worldwide within the bounds of a asset firms and digital securities activities. globally renowned regulatory environment.

27 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY When it Comes to Sustainable Finance, Market Governance is now Data Governance

The pandemic has provided a unique moment now making up 78% of total global market for reflection. Governments around the world capitalisation. have articulated a vision to “build back better” and pursue a “green recovery”, while investors However, new analysis in the OECD’s 2020 increasingly recognise that non-financial Business and Finance Outlook has shown that in sustainability issues, notably environmental, practice market participants often lack the tools social and governance factors, can and do they need, such as consistent data, comparable impact long-term value propositions. These tail metrics, and transparent methodologies, to risks; low probability, high impact events like properly inform decision-making through a pandemics, popular social movements, or the sustainability risk lens. In this context, current more severe, less predictable weather events ESG practices may not support well-functioning we can expect as the physical effects of climate markets, and may actually distort markets change manifest in the years to come. if such information is used to incorrectly price risks, allocate capital inefficiently, or As such, practices and products to better misrepresent sustainable financial products to incorporate material ESG considerations into financial consumers. financial decision-making have grown steadily. Today numerous providers offer ESG ratings Though there are several gaps to be filled, for companies, designed to assess material information asymmetries are at the core sustainability performance and risks, while of this market failure, and data must be at metrics, disclosure frameworks, investment the foundation of addressing it. Individual approaches and ESG-based financial products investors and financial markets need ESG data Greg Medcraft Director – Financial and Enterprise Affairs have similarly proliferated. ESG assessment that appropriately reflects material risks, is OECD has become a significant feature of global consistent, verifiable, and allows for accurate capital markets, with ESG-rated companies

28 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY comparison between assets – and this is not Looking further into the future, as ESG to assure employment conditions and pay in something the private sector will deliver on its reporting grows in importance companies risky industries like cobalt mining. own. For policymakers and regulators, market will need to consider how best to collect, governance increasingly means focussing on analyze and report a host of non-traditional, This journey has already started. International data governance. non-financial data in the service of financial standard setters, from the OECD to IOSCO decision-making. Here, emerging technologies and the Financial Stability Board, already have To truly harvest the potential benefits of ESG hold great promise. a solid foundation of existing policy tools practices, regulators and international standard and guidance on which to build a common setting bodies will need to work together Smart sensors already measure common data framework. The International Financial towards a globally mandated data reporting ESG metrics, like carbon dioxide emissions in Reporting Standards Foundation’s proposal framework – and the more grounded in digital power generation or industrial water usage, to establish a Sustainability Standards Board practices, the better we can leverage current and the application of internet-enabled presents a platform to convene and coordinate and emerging technologies to meet the needs devices will likely expand to automate the these efforts and drive them forward at the of investors today and tomorrow. collection and reporting of a much wider range global level. of performance data. Artificial intelligence This means formulating a common data will be critical in interpreting this wealth of Of course, none of this will be successful taxonomy as a foundation for data collection data, in particular using pattern matching without close engagement and collaboration and reporting. It means considering issues and predictive algorithms to help determine with business every step of the way – and of interoperability between the systems that which ESG risks are financially material in clearly the global blockchain, crypto, and digital collect ESG data and those that analyze and which industries and companies – but careful assets sector has a role to play here which disclose it. It means building transparency and attention is needed to ensure algorithms are should not be underestimated. As we advance, accessibility into those systems, for example fit-for-purpose and data is of sufficient quality. we look forward to working with all players in by incorporating application programming Blockchain technology is ideally suited to the financial sector to ensure the market has interfaces at the network level, and establishing secure and authenticate such data, ensuring the sustainability data it needs, and to support an independent data repository to ensure the quality and veracity, through decentralized the innovation required to get there. integrity and availability of data at the global consensus mechanisms – and is already in use level.

29 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 REGULATION & POLICY VOICE OF THE COMMUNITY Money 2.0 Towards A New Institutional Paradigm

The growing popularity of digital assets is raising Stablecoins have experienced considerable stablecoins are not limited to wholesale money questions about the nature of money and the growth over the last two years: total on-chain markets. Most are directly available and marketed structure of the underlying monetary system. New volumes alone (excluding bank coins) have to consumers and businesses. entrants and new instruments are challenging exceeded the $1 trillion mark in 2020, facilitated long-established institutional arrangements by an aggregate $34 billion outstanding supply The Regulatory Challenge and testing the boundaries of existing legal as of mid-January 2021 (up roughly 10x since This universal availability – across borders, and regulatory frameworks. Will we witness a early 2019). Today, stablecoins are a driving force organisations, and groups – presents significant monumental reconfiguration of our monetary behind much of the innovation that is occurring on challenges to regulators. With the announcement system, and how will regulators and policymakers all layers of the blockchain ecosystem. of Facebook’s Libra (now Diem), the ‘business’ of respond to these developments? money was brought into the spotlight. Stablecoins and the Monetary System New Payment Instruments Whether in Eurodollar deposits or repo Bitcoin started out as a peer-to-peer electronic transactions, the emergence of “shadow money” cash system and, for some years, was considered in the second half of the 20th century grew to Keith Bear a promising niche product for cheap and such a scale that it nearly took down the entire Associate Partner fast online payments. Its current use may financial system in 2008. Unlike bank deposits, Elixirr Consulting Limited have evolved, but Bitcoin – and other early there are no formal institutional safeguards or cryptoassets – have proven that the growing backstops in place to support these private demand for (near) real-time digital payments liabilities. Michel Rauchs at negligible costs could be addressed outside Managing Director traditional payment rails. Many see stablecoins as the latest manifestation Paradigma of privately-issued liabilities that have gained It took a few more years before stablecoins took traction as money-like instruments. They are also the scene, becoming an efficient cross-border tool seen as a direct response the demand for money for moving value between offshore exchanges that is digitally native, globally accessible, and Tania Ziegler FinTech Benchmarking Specialist and other cryptoasset service providers. cost efficient to move. Unlike ‘conventional’ types of shadow money,

31 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY The concerns range from money laundering to Enter CBDC insights into one potential course of action. Today, capital evasion. In particular, concerns about Research by the Bank for International Alipay and WeChat Pay account for over 80% of the potential impact of stablecoins on financial Settlements (BIS) has revealed that some 80% mobile payments, and their savings, loans and stability have been growing in lockstep with rising of the world’s central banks are now researching, wealth business have been taking market share volumes. experimenting or piloting CBDC. The evidence from the traditional commercial banks over recent points to most central banks using CBDC as an years. In the current e-CNY pilot, however, it is Stablecoin issuers rely on commercial banks not additional lever to manage financial and monetary so far the commercial banks – not the FinTechs – only for processing deposits and withdrawals, stability, leaving the distribution and management that are distributing the CBDC and managing the but also for custody of most of the collateral primarily to the private sector. How CBDC is corresponding digital wallets, re-establishing their that back the assets. Given the scale of potential designed and implemented will vary from one role in the market. issuers such as Diem, stablecoin reserves may country to another, but it will have wide-ranging act as gigantic collateral sinks that could further implications on both private forms of money and exacerbate the global collateral shortage, thereby their respective issuers. creating a new source of systemic risk in an The CBDC debate provides an opportunity for already tense macro environment. Will CBDC reinforce the role played by the the reconfiguration of the monetary system that commercial banking system, perhaps at the makes it fit for purpose for a 21st century digital Some argue that any deposit-taking entity, expense of FinTechs and TechFins alike? Or economy. Private sector innovation in money including stablecoin issuers, should operate under will they lay the groundwork for increased and payments has always been an essential a banking license. With a growing number of competition by allowing more private enterprises driver of the development of monetary systems. traditional banks contemplating the launch of their to access the privilege of money creation in new A new institutional arrangement may provide a own stablecoins, opponents of the requirement of ways? BigTech, FinTechs and TechFins may take formal role for new actors – such as FinTechs and a banking charter argue that it presents too much a much more active role in the management and BigTech – in the operation and management of of a burden for most market participants, and operation of the monetary systems than ever the monetary system. would provide an unfair advantage to incumbents before. and well-funded competitors. Meanwhile, the rise of central bank digital currencies (CBDC) may How these initiatives will play out remains an open Read the full article here provide an alternative opportunity. question, but China’s e-CNY pilot can offer some

32 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY Establishing Best Practices: Integrating the GDF Code of Conduct into Training Programs

Since 1955, the ACI Financial Markets training, enabling staff in financial institutions to GDF is a highly professional outfit that Association (ACI FMA) has been focused accumulate CPD hours based on its codes and strikes precisely the right balance among on enhancing good market practices and demonstrate their understanding of the unique the objectives of gathering key stakeholders supporting market participants to adhere to requirements of this sector. into common fora, engaging with regulators principles of ethical conduct. and policy-makers on behalf of the To this end, we are in the early stages of industry, and identifying and executing As digital finance has flourished in the past forming a joint working group to establish against specific actions to deliver effective collaboration with governments and few years, so too have the new requirements how best to integrate the codes into the ELAC industry-driven outcomes. for codes of conduct: with assets ever more program. This requires the leaders of the digitized, ever borderless, the principles various parts of the GDF codes to use their that guide good practices must also look to expertise to envision the scenarios in which GDF Member Survey 2020 preserve the innovation that the new asset each principle would be applied. classes offer. It is a good exercise in determining the As a major industry backer and supporter harmonies between the new crypto world and of the FX Global Code, we have been established financial practices, and we look collaborating with GDF for over a year forward to delivering the training program in discussing codes of conduct for the crypto and the year to come. digital asset space.

The ACI FMA is now reviewing the GDF Code of Conduct to potentially include it in our E-Learning, Attestation, and Certification (ELAC) platform. The GDF Code already stands Kim Winding Larsen President as a set of principles to uphold and self-certify ACI Financial Markets Association against, but it can also become a tool for

33 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY Advancing Engagement with Industry at Domestic and International Levels The OECD’s Global Blockchain Policy Centre

When we created the OECD’s Global financial system closer to reality. At the same fruitful. This is one of the reasons we set up Blockchain Policy Centre in 2018, I hoped to time, many traditional financial institutions the OECD’s Blockchain Expert Policy Advisory build a reference point for policymakers from are drawing on the technology to offer more Board, including Lawrence Wintermeyer from across the world as they began to explore efficient inter-bank settlement systems, or GDF, to bring together the public and private the policy implications of distributed ledger to create new services, such as JP Morgan’s sectors as well as academia and civil society to technologies (DLT), as well as how it may be interbank information network, Liink. pursue viable innovation and adoption of DLT. used as a tool to achieve policy objectives. The As we head into 2021, we can expect to see demand for this level of policy discussion was Long-term however, adoption of these new DLT-applications in the finance sector grow, made clear when in mid-2019, the Facebook- applications in the finance sector requires from tokenize assets to central bank digital led global stablecoin initiative Libra, now Diem, a sound policy framework to provide the currencies. As a result, the important work of exploded interest in the technology in the certainty and confidence necessary for mass policy makers at the domestic and international mainstream finance world. The risks it posed to adoption. This includes an understanding of level, in responding to and anticipating such traditional financial and monetary systems was the fundamentally different structure of DLT- developments, must continue to advance. underlined by French Finance Minister Bruno based applications, which can hamper an easy Le Maire when he announced at our annual fit within existing regulations when in their Global Blockchain Policy Forum that Libra in most decentralized form. Already we have seen its current form was not welcome in Europe, some countries develop guidance, or offer a recognising that “the monetary sovereignty of regulatory sandbox for DLT-based fintech, most Caroline Malcolm States is at stake”. recently the European Commission’s proposal Head of Global Blockchain for a “Markets in Crypto Assets” regulatory Policy Centre There has been a lot of water under the bridge framework. OECD since then. In the past twelve months we have seen the Diem Association revamp its proposal The pace of technological development in key regards, and watched the rapid growth suggests that these policy efforts must of DeFi projects, which aim to bring the initial accelerate and ongoing industry engagement promise of Bitcoin and a dis-intermediated in that process is critical to such efforts being

34 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY Why Self-Hosted Wallets Are Critical to the Future of the Crypto Economy

Self-hosted wallets allow individuals to engage and seizing ill-gotten digital assets. Additional Finally, these restrictions would indiscriminately in transactions over the internet on a peer-to- restrictions on self-hosted wallets would not apply payments regulation to a diverse and peer basis, meaning that no other individuals or only represent a disproportionate response developing ecosystem with applications that entities are parties to the transaction. The ability to the risks, but it would also undermine law extend far beyond the transmission of money. to “cut out the middleman” in digital transactions enforcement’s ability to establish attribution in Similar to a home safe, self-hosted wallets could creates a new paradigm for individuals, cases involving digital assets. be used to store other digital assets, including policymakers, and law enforcement alike. important documents and even immutable Secondly, these restrictions would lay the digital art. Pre-emptively applying payments Some domestic and international regulators foundation for total surveillance of citizens’ regulation to self-hosted wallets would are concerned that cutting out intermediaries financial lives by eliminating a digital cash- inappropriately “pigeonhole” an innovative creates unacceptable money laundering and like payment option. The decline of cash ecosystem that could bring revolutionary terrorist financing risks. Their concerns are transactions has driven the majority of products and services to the market. understandable: illicit actors are likely to transactions online involving exploitable exploit the financial system at their disposal. intermediaries, meaning that they are not The restrictions that we place on this private. technology will have broad and long-lasting Allowing individuals to transact on a peer-to- consequences for our society. It is a policy peer basis over the internet, however, is a net Thirdly, restrictions on self-hosted wallets decision that tests our commitment to a right positive for society and therefore good policy. would eliminate the unique features of digital to privacy and ownership, and should therefore Here’s why: assets that make them a catalyst of expanding be adjudicated by our elected representatives. financial inclusivity. Because anyone with an The best available evidence suggests that the internet connection can create and use self- percentage of illicit activity (as well as absolute hosted wallets to transact with others, they are dollar amount) in the traditional financial system the critical feature of digital assets that could is higher than the percentage of illicit activity make basic financial services available to the Kristen Smith in the digital asset ecosystem. Moreover, as billions of people currently without access to Executive Director evidenced by a string of recent forfeitures, law these services. Blockchain Association enforcement has become adept at identifying

35 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY Digital Identities: The Cost of Waiting

There has been a really big change in the While we may be no nearer to calculating the environment around digital identity over the costs of having a digital identity infrastructure, past year. The coronavirus catastrophe has we now have some very accurate figures for required many individuals, companies and the costs of not having that infrastructure. In organizations who never had to do business the UK, recent estimates from the Treasury online before to shift to the new normal in and others indicate that losses to fraud in the double-quick time. This in turn has highlighted disbursement of government COVID support the need for stronger online identification. We and aid to both individuals and businesses have seen a shift in the perception of digital could be in the region of £50 billion and identity from being a “nice to have” to a upwards. In this country, we could have had a fundamental. fully developed, privacy-enhancing, innovation- enabling digital identity platform for a fraction I have sat through countless meetings trying of that cost. to work out business models around digital identity in my time. I have often been met with Perhaps now is the time to bang a few heads the kind of natural resistance that you expect together (starting with the banking industry) in the corporate world. So, when someone and start work on the digital identity framework from the Department of Whatever asks me that the Future of Finance review noted as to project the value of new revenue streams crucial in a post-pandemic, post-Brexit and and the associated costs of delivering digital post-password world – not just for finance, but identities for the year 2033, for example, I am across the whole economy. stuck. I can say that there will be winners and losers in the digital identity game, but being an honest sort of person I have had to admit that the magnitude of gains and losses contains David Birch guesswork. Author and advisor on digital financial services

36 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY The DeFi Wave

Major trends in the digital assets industry have as innovation pressed beyond R&D and into At the same time, the DeFi community of come in waves over the past few years – the production, tested in real-time by an active ‘degens’ will continue building and testing and DAO, ICO boom, Bitcoin’s bubble, enterprise (and at times ferocious) community of traders, experimenting at the bleeding edge of finance, blockchain, or tokenization of everything. In developers, and retail consumers. In the span whether or not the regulators like it. This will 2020, the DeFi wave, or decentralized finance, of a few months, DeFi grew beyond just yield lead to a bifurcation of DeFi in 2021, as a mirror came crashing ashore. farming and lending into a full-stack of financial universe built for the institutions begins to services products. appear and a struggle for the future of the DeFi can be viewed, in part, as an off-shoot of movement starts to take shape. the financial services movement collectively On the Horizon, Regulators Toil known as open banking. Open banking is The automation of financial activities across focused on transforming stodgy legacy banking these new, open systems have reduced the systems, all the while increasing financial access need for counterparties, issuers, and centralised and inclusion. DeFi, which sits on the far edge entities. But these innovations and efficiencies of the open banking horizon, is a mixture of come with great risks. And, while these systems products and services built on open, public are new, many of the activities they execute are blockchain networks and accessible through not. DeFi, as a collective, must think carefully various on-ramps and decentralized products. about how it grows, mitigates risk, and complies DeFi exploded in 2020. Projects that had with regulations. been under the surface for years, such as bZx, Watch panellists discuss the transition from CeFi to Uniswap, or 0x, found a captive audience and It is clear that a primary goal in 2021 will be DeFi at our Hogan Lovells DeFi conference broad interest in their products. Anonymous to shore up monetary sovereignty through founders and community-driven projects new regulations on stablecoins and unhosted were deployed at a rapid pace during the wallets. Projects, backed by venture checks, DeFi summer and subsequent liquidity wars. will build regulated on-ramps and integrations, Jake Stott The lego blocks of DeFi began taking shape enabling institutional players to dip their toes. dGen

37 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY The Year Digital Assets Became Essential The New Normal and the Case for Stablecoins

2020 was a seminal year for the world and continues to wreak havoc globally, the cautious was the year this change became lasting. for how essential technology is in keeping the optimism of vaccine mobilization should see a 2021 and beyond will mark the period these gears of the global economy turning. In every return to a “new normal.” There are, however, developments gain much needed regulatory aspect of our lives during an unprecedented some items worth keeping as we reflect clarity following a ‘same risk, same rules’ global crisis, the role of technology for on a year of fintech innovation. The use of technology-neutral approach to oversight. household, business, and governmental blockchain as a core building blocks of user- continuity has been essential. This is true in directed payment systems should be here to perhaps every aspect of our lives, with the one stay. potential exception being the way we transfer value. A key pillar of broadening the base of participation in these efforts is the growing The case for the efficiency, reduced friction wave of regulatory clarity for the treatment and user empowerment that is the promise of of these assets, and promoting responsible fintech was laid bare through the course of a and principled innovation. Chief among these tumultuous year—one in which governments are efforts on both sides of the Atlantic grappled with how to get direct relief to their and around the world to address the legal neediest citizens, while targeting economy- classification of digital assets, while at the same Watch the Global Leader’s Townhall with Dante Disparte, wide interventions to protect and preserve the time delineating minimum expectations when Executive Vice President at Diem Association. engines of commerce amid a global lockdown. it comes to combating illicit activities in the space. In this environment, contactless payments, reduced costs and efficiency in the movement Encouraging market developments suggests Julien le Goc of value, without sacrificing trust and the era of cryptocurrencies is beginning to Director of Policy compliance, have proven essential. As COVID-19 bridge the gap into the real economy. 2020 Diem Association

38 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY Sandra Ro CEO The Global Standards Global Blockchain Business Council

Board Member Mapping Initiative GDF

2020 was a big year for the blockchain and includes two reports (Legal & Regulatory and digital asset industry – global blockchain Technical) and an Interactive Map of blockchain spending is forecasted to reach $4.1 billion by and digital asset regulation and guidance. year end, major institutions entered the picture, and after years of heads down building, many The GSMI is intended to serve as a resource projects moved into production. for the blockchain and digital asset community and will continue to evolve beyond this initial While the blockchain technology and digital release. As we look towards 2021, outlining a assets industry has grown tremendously, a lack path towards universally accepted standards of harmonization in technical standards and will become increasingly important. Key Explore more of the Global Standards regulation threatens broad-based adoption and areas of focus moving forward will include: Mapping Initiative progress. In light of this, the Global Blockchain a deeper dive into taxonomy, an important Business Council (GBBC) and World Economic first step in achieving greater harmonization; Forum (WEF) in partnership with blockchain developing regulatory reporting and derivatives and digital asset leaders, including Global frameworks; and continuing to update and Digital Finance (GDF), came together to release expand jurisdictional coverage. the Global Standards Mapping Initiative (GSMI). As the GBBC and its 2021 partners work The GSMI 2020, version 1.0 is an unprecedented towards developing the roadmap and working effort to map and analyze data from over 185 groups for GSMI version 2.0, we encourage jurisdictions, nearly 400 industry consortia, interested parties to get in touch. and over 30 technical standards-setting [email protected] entities to assess the current landscape and evaluate where there may be gaps, overlaps, inconsistencies, and conflicts. The GSMI

39 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY The Alchemy of Talent and Techonology Leveraging technology to create human-centred economies

Covid is an indiscriminate infector yet the promise set out in my 2017 report. It is more no excuse and rather, some shame, that we in discriminating deliverer of death. My heart goes than possible for every nation to deliver digitally the West still have so many shut out through the out to all those affected by the virus and to all enabled borders if we choose and if we don’t failings of traditional financial services. those souls taken before their time. The crisis choose, we all, to varying extents, lose. has also exposed much which is sub-optimal in Technology is not a silver bullet, but seeing our social and economic fabric. Covid, like so Finance doesn’t need to be the dough that that we have such phenomenal tools in our well much of what currently faces us, is more than a divides. Finance can be an enabler, a grower, a washed hands, it is on us to determine how we matter for the nation state. Be it the pandemic public-private good. It must include and through deploy them. The goal must be to enable the or climate, problems are international, and the that inclusion empower every citizen. Financial citizens to look at a new social contract. We can solutions must be collaboratively global. The exclusion blights economies, scars societies align the individual interest with the societal, and tools at our disposal for these problems will be and locks down individual potential. Financially the lot, with the planetary. We can reimagine the alchemy of talent and technology. include and an economy grows, financially innovative, human-centred, interconnected include and everyone benefits. And it is possible: “future states”. By digitizing finance, we have the potential all we must do is look a little differently at the to transform global trading relationships. And issues in broader context. We have the opportunity to secure DLT and all the choice is clear: it’s international trade, elements of 4IR as a benefit for public good. We cooperation and interconnectivity, or get left Fintech has come up with so many solutions to can create public-private partnerships worthy of behind. financial exclusion. Covid saw many perfected, that title. We can own, really own, our identity, pro bono, over a weekend around the globe: our data, and be digital citizens. We can use I was fortunate to lead on an international proof people focused on getting the finance to the technology to empower and include, both of concept, Reducing Friction in International individuals traceably, speedily, and efficiently. financially and digitally. Technology is neither Trade (RFIT), deploying Distributed Ledger servant nor master. Technology is the partner. Technology (DLT) and Internet of Things (IoT) to One such solution based on DLT has enabled digitize paper processes of the Australia-United those in refugee camps in Syria to gain some Kingdom wine trade. It was a truly collaborative, financial independence and digital identity. Christopher Holmes pro bono effort, demonstrating the possibility What an example of talent and technology at its Lord Holmes of Richmond of doing things differently and delivering on humane best. If it can be done here, there seems MBE

40 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 VOICE OF THE COMMUNITY GDF EXECUTIVE REPORT Emma Joyce Head of Community & Membership GDF GDF 2020 in Review

2020 was a year we will never forget. The world codes launched for AML / CTF, Custody, and Markets Digitization Steering Group delivered came to a halt, schools and offices shut down, Market Integrity. In May, the Joint Working a reference architecture and a POC in the space and worldwide lockdowns sent shockwaves Group (JWG) ratified IVMS101, the InterVASP of a few months, and their pilot program will through most economies. Throughout 2020 messaging standard that has been adopted by go live early 2021. Alongside these projects, the and the pandemic, Global Digital Finance, like the industry. The JWG is co-chaired by GDF, support for the R3 CBDC working group and many in our community, has proved resilient The Chamber of Digital Commerce, IDAXA, and the collaboration on research with the GBBC and agile. Today, we have over 100 GDF Code XReg Consulting and is comprised of over 130 and WEF on the Global Standards Mapping Members and 300 community members – and professionals who, in response to the FATF R16 Initiative (GSMI) has really demonstrated how we continue to grow. requirement for VASPs, dedicated themselves agile GDF has been in growing beyond conduct to delivering this standard in a record time of 17 standards. We have welcomed the London Stock weeks. Exchange Group, EY, SDX and 100x onto our Patron Board, and XReg Consulting and New Directions ING joined our Advisory Council. Securrency, 2020 was also the year that GDF went beyond dGen, Bancambios Financial Technologies, codes. Our Enterprise Blockchain Report, Rain, Xkey, Lacero, Fasset, Notabene, 9th Gear created by Keith Bear & Michel Rauchs, covers Technologies, Kaiko, Bloc & Partners, Market the emergence of the “Big 3” enterprise Across, Farha Legal, Rowet Group, Shyft blockchain platforms: Corda, Ethereum, and Network, Okcoin, Crypto.com, Bitfinex, Lykke Hyperledger. The Public Digital Currencies Corp, CRYFIN, TrustMe and Aereve all joined as working group released a comprehensive Working Members. account for policy makers focused on issuing public digital currencies. The Tax working group GDF member-led working groups have been published their paper on global tax issues in Read the Enterprise Blockchain Report prolific in their development of standards, July, which has been recognized for its material codes and working papers in 2020. New substance by the OECD. The new Private

42 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 GDF Executive Report Events At the end of 2019 we surveyed our community FAFT collaboration platform – in partnership and over the course of 29 weeks we have in order to plan our 2020 program. The with the associations IDAXA and ACCESS. listened to policy makers, authors, regulators feedback that we received was that many also and business leaders discussing trending topics look to GDF for thought leadership, and we Our conferences and summits were watched including CBDCs, DeFi, and the effect of the were asked to curate more events. 2020 was live by over 2000 audience members, with pandemic on the wider economy and indeed not the year for traditional conferences, but even more viewing the recordings. The our social wellbeing. this was quickly turned into an opportunity: no positive feedback from our events consistently longer constrained by geographical location, focused on the depth and relevance of the rich We continued our General Knowledge Sharing members globally were able to participate in discussions. For this, we have our panellists and Webinar Series that began in 2019, and over and attend our virtual conferences, webinars, speakers to thank. the year members have presented on Prime and summits. Brokerage in Digital Assets, Institutional Webinars & Roundtables Custody, Digital Identity, The Travel Rule In fitting with our association’s global nature, The knowledgeable and committed people Sharing Alliance as well as panel discussions on these events always had an international, cross- who make up both the GDF membership and the current regulatory landscape, and a review jurisdictional focus. We started in March with greater community also enabled us to deliver of 2020. our , where speakers Covid-19 Hubs Summit our popular Global Leaders Webinar. We situated across 6 continents reported on the launched this series in March in partnership Just before many countries entered a lockdown local responses to the first wave of global with The Global Blockchain Business Council, lockdowns. In July, we produced our Digital Currencies and Global Stablecoins Conference with DLA Piper which had over 500 delegates engaged. The summer also saw the FATF open our Travel Rule Conference, and in September we held our Sustainable Finance Conference with an incredible line up of experts in this area. In October we held our DeFi Conference and in the same week produced V20 – the industry-

Heath Tarbert on the Global Leaders Digital Currencies and Global Townhall Series Stablecoins Conference

43 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 GDF Executive Report #1 “GDF is a leader in this space. Policy Maker The team is as professional as they Outreach come and GDF makes a real impact & Advocacy in the industry.”

#2 Regulatory GDF Member Survey 2020 Outreach & Advocacy Digital Asset Report

#3 Working in March, we launched the Digital Asset Report to the support and hard work of our members Groups recorded from the London Stock Exchange and community contributors, all of whom are #4 Group studios with our partner Fintech.TV. We committed to the development of conduct standards in the global crypto and digital assets Thought pivoted to virtual recordings for the interviews Leadership and have now delivered 27 member interviews sector. We would like to thank every single one this year on the channel. of our Code and community members for their support, dedication, and contribution in this #5 Before GDF became a members’ association, unprecedented year where we also pause to Roundtables our journey began in 2018 producing code share our thoughts with those who have been of conducts and holding small roundtables affected by COVID-19. to investigate and explore subjects in detail. While we have grown and progressed during I’d also like to thank the GDF Board whose help 2020, we have also returned to our roots, and and guidance are invaluable, our wonderful Best Ways for GDF to Support Firms in 2021 this year we held roundtables on Consumer executive team which came together in GDF Member Survey 2020 Wallets, DeFi and the UK Fintech Review. 2020, our Patron Board who set the strategic These small assemblies enable participants to direction for GDF and the Advisory Board that discuss topics in detail and drive the focus of oversees the development of the codes of our working groups. In the new year we will conduct, regulatory consultations, and policy continue to explore themes and subjects in this recommendations. GDF is truly a member-led way by expanding our roundtable program. association. Everything we have achieved this year is thanks

44 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 GDF Executive Report 2020 in Numbers

Top Challenges to the Crypto and Digital Asset Sector for 2021 Working Groups GDF Member Survey 2020 13 active in 2020

Approved Codes 3 & Standards #1 #2 #3 #4 #5

Lack of regulatory Financial institution Blockchain Access to banking Digital identity clarity readiness Interoperability facilities 7 Regulator Responses

Webinars & Digital 64 Asset Reports

Top Priorities Areas for Further Code Development Conferences & GDF Member Survey 2020 9 Summits

#1 #2 #3 #4 #5 #6 #7 #8 #9#8 Roundtables 4 DeFi Stablecoins Digital Interoperability CBDCs Crypto & Exchanges Self-Hosted Custody Digital and Wallets Asset Platforms Derivatives

2000 Delegates +

45 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS In partnership with Global Leaders Townhall of Fame 2020

46 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 GDF Executive Report GDF Code Members & Partners Ecosystem

47 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 GDF Executive Report 48 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 INTRODUCTION ADVISORY COUNCIL & WORKING GROUPS Beyond the Codes: A Letter from the Advisory Council Chair and Secretariat

In its first year, GDF brought together a and an Advisory Council members’ group was anticipate the industry’s needs and mobilize community to develop codes and standards created to provide an in-depth response to the the community to respond. Through this, GDF’s for the digital asset sector. In an extraordinarily EU’s Markets in Crypto-Assets proposal. achievements have evolved well beyond Codes busy 12 months, the Advisory Council oversaw of Conduct, and into new ways of engaging the approval of nine of these codes, and the Led by the discussions held in our monthly with policy makers. creation of the working groups that led them. Advisory Council meetings, we have continually found the new tasks for the industry to It has been our pleasure to lead the Advisory If we were under the impression that COVID-19 undertake. Other working groups have Council meetings throughout the year, and we might slow us down in GDF’s second year, continued to work on codes, and between the look forward to all that is to come for GDF and we were happily mistaken. That said, these reports, pilot programs, consultation responses our community in 2021. activities have taken new forms. and roundtables, the output from GDF has continued to thrive. Between the EU’s proposed framework for cryptoassets and the FATF’s requirements, This year has made two things clear: firstly, this year has seen rapid developments it has shown the extent to which these from regulators as they grappled with the achievements rely on the engaged industry Malcolm Wright Chair complexities of this new asset class, whose leaders who make up a community such as Advisory Council emergence showed no slowdown in 2020. ours. We would not have made such progress in this sector were it not for the members’ input, As our industry has evolved, so too have its the richness of the discussions that they lead, requirements, and GDF has proven that it has and their will to collaborate with each other— the agility to respond accordingly: the Private despite the sector’s nascent state. Bryony Widdup Secretariat Markets Digitization Steering (PMDS) group Advisory Council and Public Digital Currencies group were set Secondly, the Advisory Council continues to up in response to the impact of the pandemic, be crucial to the strength of GDF, helping it

50 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS Custody Working Group

In 2020, the GDF Custody working group Finally, the co-chairs will be working to develop finalised the GDF Code of Conduct Part VIII – training scenarios based on the GDF Custody Principles for Custodial Wallet. The code was Code of Conduct that will mirror the ACI ELAC approved by the Advisory Council in Q1, and is platform, allowing organizations to extend their now available for members to attest to. team’s knowledge base.

Throughout the rest of the year, the group continued to respond to various consultation papers impacting digital asset custodians. The group built travel rule protocols and Alexander Kech solutions inventory and, with the support of CEO See the Code of Conduct Part VIII - ING and Clifford Chance, a custody regulatory Onchain Custodian Principles for Custody landscape.

In 2021, the group will continue to monitor travel rule implementation and regulatory Hervé François changes. We will work on extending the Blockchain/Digital Assets working group to new and traditional Initiative Lead ING custodians as well as extend self-certification to our code of conduct.

51 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS KYC / AML Working Group

2020 was the year of execution, building on the cover more ground more efficiently. foundations laid out by the FATF in its updated Expect more in 2021 as we do not see any Recommendations in 2019. Countries legislated let-up coming to the work that needs to be and firms took note of their obligations. completed and we are constantly encouraging We saw more firms move towards compliance more GDF members to join us with the with the FATF Recommendations, even if their foundational and important efforts. own jurisdictions did not require it yet. This happened for two reasons: to be ready for legislation, and to be ready to comply with counterparty VASP’s travel rule obligations. Explore the Consultation Responses here Firms saw immediate benefits, particularly from institutional investors feeling more comfortable Malcolm Wright Chief Compliance Officer with a maturing industry. 100x

The AML working group then focussed on supporting these efforts. We released TRIXO (a VASP to VASP onboarding questionnaire Jack Gavigan for travel rule purposes) late in the summer, Product and Regulatory Affairs responded to numerous consultations from the Electric Coin Co. FCA, FinCEN, and Hong Kong among others, and are currently developing a more detailed best practice guide based on the AML Code of Dominic Gee Conduct. This year also saw us split into two Adivisor and Consultant subgroups (EU/Asia and EU/US), allowing us to

52 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS Market Integrity Working Group

After a year of work involving close to 40 end of 2019, major economies globally have organizations, the Market Integrity Code of presented advanced crypto regulatory and Conduct was presented to and ratified by licensing frameworks at an accelerated pace the GDF Advisory Council. In addition to and it seems the industry is finally getting the looking at the role of trading platforms in regulatory clarity it has been asking for. The improving market integrity, the code examines sector has the opportunity to demonstrate an extensive list of market participants, from in return that it is s committed to integrity individual traders to data companies and and compliance, something which the GDF even journalists. The result is a comprehensive community can be proud of leading. guideline for any market participant to relate to and act upon, making market integrity a true Moving forward in 2021, the working group See the Code of Conduct Part IX - industry effort. plans to extend its work to more specific Principles for Market Integrity challenges to market integrity, focusing first 2020 has without a question been a year of on the need for shared-surveillance to address strengthening market integrity. Since the cross-market manipulation and enable crypto- ETFs.

It has been a pleasure to be involved in working groups in 2020, and we look Chen Arad forward to continued involvement, and Chief Operating Officer attending events. Solidus Labs

GDF Member Survey 2020

53 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS Public Digital Currencies Working Group

When Covid ground economies to a halt, digital currency. We provide a framework and most welfare mechanisms were not built to recommendations for the global policymaking withstand such an effect and Governments community on the public policy choices, sought to distribute additional financial stimuli practical realities, and challenges of deploying a to assist. The complexity of existing financial public digital currency and wallet infrastructure. mechanisms made getting much needed central bank money to businesses and individuals very slow, with each day rendering the utility of this policy approach less effective.

Read more: The Age of Public Digital Currencies: This sparked a discussion on the function A Guide to Issuance Lavan Thasarathakumar of Public Digital Currencies and Wallet Head of Regulatory Affairs – EMEA Infrastructure as a means for disseminating GDF central bank money directly to those that need it without delay. Perhaps the most significant discussions took place in call for a Digital Dollar in both The US House of Representatives John Collins through the CARES Act and the US Senate Partner FS Vector through the Banking for All Act.

As such, GDF pulled together a working group to produce a report that would act as a primer for Governments, Central Banks and policy makers who are looking to explore public

54 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS Private Markets Digitization Steering Group (PMDS)

The GDF Private Markets Digitization Steering network called FinP2P, connecting all Group was formed in the spring as an institutions, across all sub-markets and DLT industry response to the Global Pandemic. technologies, into one global digital securities Private markets raise twice as much capital distribution and liquidity network. annually as public ones, but are 330 times less liquid, operating almost entirely offline and Working at unprecedented speed, we published not ready for our new “online reality”. the API specifications for FinP2P in August, The group of 70 financial institutions, and a pilot program was launched in exchanges, law firms and technology September. The full pilot will be delivered early companies sought to create an online shared in 2021 and we expect a production network to Read the Private Markets Digitisation institutional network in which any asset be up and running before the end of the year. Institutional Handbook can be distributed to any suitable investor Where GDF Working Groups have previously globally, irrespective of location and regulatory focused on developing Codes of Conduct, this jurisdiction. group represents a new direction for the GDF community and stands as a stellar example of Above all, the group focused on solving what is to be achieved from the industry interoperability challenges between financial coming together to collaborate. institutions. We did so by delivering one overlay

Anthony Woolley Lavan Thasarathakumar Head of Business Development Head of Regulatory Ownera Affairs – EMEA GDF

55 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS Tax Working Group

In July 2020, the Tax Working Group published Group has been considering what tax issues a working paper on the Tax Treatment of are of interest to the wider GDF community, Cryptoassets, the industry’s first comprehensive so as to best focus its efforts moving review of the tax issues facing digital assets forward. The group plans to further utilize Rather than engaging in a country-by- its current engagement with tax regulators, country analysis of tax laws, the paper looked intergovernmental organizations, and industry novel issues specific to the industry from participants to engage in a dialog regarding key the classifications of types of cryptoassets tax issues. for tax purposes, to the appropriate taxing jurisdictions for cross-border transactions, and the challenges in calculating tax liability. Read Tax Treatments of Crypto-assets Since the working paper’s publication, it Lisa Zarlenga has been shared and discussed with various Partner & Co-Chair of Tax Group tax regulators as well as with the OECD. In Steptoe & Johnson, LLP addition, the Tax Working Group authored a summary and analysis of the OECD’s overview of tax treatments of virtual currencies. In November, Lisa Zarlenga, co-chair of the group, Krystle Gan presented on a panel at the OECD Global Seconded Counsel Blockchain Policy Forum entitled Crypto-Tax: Wells Fargo Ensure a Robust and Transparent Tax Policy Framework.

56 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 ADVISORY COUNCIL & WORKING GROUPS TALENT & GOVERNANCE Abdul Haseeb Basit Treasurer & Board Member GDF Human and Financial Capital

GDF’s success is down to the strength of our Chair and Abdul Haseeb Basit, as Treasurer and our partnership with advisory firm FS Vector. team and our exceptional member community. Board Member. Simon Taylor continued in the We have welcomed Phil Anderson and Taylor In what has been one of the most extraordinary capacity of Non-Executive Co-Chair alongside Marriott from Perception A, who will lead our years for many of us, we at GDF have been Non-Executive Directors Jeff Bandman and PR and Media. focused on the wellbeing of our team and Sandra Ro. Colin Murdoch, COO at Google community as a priority. Deepmind joined the board as an independent Governance observer during 2020. In 2020 we welcomed new Patron members In Q1 we took an early decision before many 100x, Coinbase, EY, The London Stock of us moved into lockdown in our respective Our senior Executive team was led by Emma Exchange Group and SDX to our Patron board. locations to halt physical events and move to Joyce, Head of Community. 2020 saw some virtual events. A large part of our community new additions to the team notably Anastasia Alongside these new Patrons, we also interaction, namely working groups, have Kinsky, who joined GDF as Programme welcomed new members, ING and xReg been virtual from the outset and were able Manager having previously led content Consulting to our Advisory Council. Malcolm to continue uninterrupted. Our team and for Blockchain Live. In the second half of Wright, from founding Patron Member firm community has rallied to deliver more content the year, we welcomed Melissa Corthorn Diginex, who moved to 100x in October chaired than in any prior year through our suite of as Events Manager and Thomas Peers as the Advisory Council in 2020 alongside Bryony digital activities launched in 2020. Community & Programmes Analyst as we said Widdup from DLA Piper as AC Secretariat, farewell to Natalie Hall, Head of Growth and supported by her DLA Piper colleague Malithi Our guidance to our community remains that Communications, who left to pursue other Fernando. we expect to host digital only events going into opportunities. We would like to thank Natalie 2021, as we wait for the pandemic to subside for her dedication in an extraordinary year and We would like to thank all those who have and will review this decision on a quarterly wish her the best for her future career. contributed to GDF in 2020, who have allowed basis in the coming year. us to serve our community during a challenging Our regulatory affairs team consisted of Lavan year and set us up for continued growth in Board and Executive Team Thasarathakumar as Head of Regulatory 2021. In 2020 our Board and Executive was ably led Affairs - EMEA, and John Beccia, Head of by Lawrence Wintermeyer as Executive Co- Regulatory Affairs – US, a part-time role via

58 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Finance and governance Meet the Team

Lawrence Wintermeyer Emma Joyce John Beccia Executive Co-Chair & Guarantor Head of Community & Membership Head of Regulatory Affairs - US

Simon Taylor Melissa Corthorn John Collins Co-Chair & Guarantor Events Manager Regulatory Affairs - US

Sandra Ro Anastasia Kinsky Phil Anderson Board Member Programme Manager Media & PR

Jeff Bandman Thomas Peers Taylor Marriott Board Member Community & Programme Analyst Media & PR

Abdul Haseeb Basit Lavan Thasarathakumar Treasurer & Board Member Head of Regulatory Affairs – EMEA

59 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Finance and governance Our Code Members

Our Patron Members Our Partners

Our Advisory Council Members

60 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Members Our Working Members

61 GLOBAL DIGITAL FINANCE ANNUAL REPORT 2020 Members HEADQUARTERED AT: CONTACT US: FOLLOW US: Kemp House e: [email protected] @GlobalDigitalFi 160 City Road w: www.gdf.io Global Digital Finance London EC1V 2NX @GlobalDigitalFinance United Kingdom