The problem with the way regulators interpret financial privacy

In a recent announcement by the SEC, the regulator had noted that it has filed 434 enforcement actions in FY21, in the areas of crypto, DeFi, and dark web. While regulatory actions have grown stringent globally, India recently refuted rumors of a private crypto ban.

In a recent interview, Crypto Connect founder and lawyer Hailey Lennon also opined that crypto bans don’t work. She said,

“A country trying to ban a certain type of crypto activity doesn’t end well.”

She said that that entities just leave the territory instead of disappearing. And, we have a real-world example with China, as Bitcoin miners soon relocated to other parts of the world. Several vocal industry voices have also recommended a regulatory structure that doesn’t hamper innovation.

In a recent report, global think tank ORF stated that “innovation-friendly steps taken by some regulators to encourage start-ups to set up base within their jurisdictions,” can help the local crypto industry grow.

Meanwhile, Lennon stated,

“Different countries may find different use cases for cryptocurrency…”

Having said that, Thailand recently turned to crypto to boost its tourism sector by allowing digital tokens for travel. With that, Japan has amended its Payment Services Act to treat crypto as a property. Meanwhile, El Salvador brought in a Bitcoin policy framework to make it legal tender.

On the contrary, Lennon commented that the US is far from a similar policy decision considering the regulators want to control the monetary policy in the country.

Crypto privacy

In the context of crypto and CBDCs, Lennon touched upon another aspect of financial privacy. She said,

“When it comes to financial privacy. All of a sudden, regulators tend to think privacy means secrecy.”

While Lennon believed that the US need to bridge that gap, SEC Commissioner Caroline A. Crenshaw had listed “pseudonymity” and “lack of transparency” as existing hurdles in the space. She had said,

“While some in DeFi believe in absolute financial privacy, I expect that projects that solve for pseudonymity are more likely to succeed because investors can then be comfortable that asset prices reflect actual interest from real investors, not prices pumped by hidden manipulators. “

With that, in the context of China, Lennon opined that increasing surveillance on anyone is like increasing surveillance on everyone. Adding,

“…and you know who usually gets around that are the bad actors.”