After years of studying music and applied linguistics, Juan Llanos obtained an MBA and then left his home country of Argentina for Europe and the USA, where he became one of the first certified Anti-Money Laundering (AML) specialists in 2003. He has almost 20 years of experience building AML and regulatory compliance programs globally. 5 years ago he started advising startups in the crypto space, where he became a member of the Bitcoin Foundation’s Regulatory Affairs Committee and other industry associations. After recently leaving Consensys, Juan is currently developing his own advisory and RegTech projects.
Juan Llanos sat with HODL Finance‘s Vytautas Zabulis during his recent visit to Lithuania at the invitation of the European crypto-backed loans company:
How would you describe RegTech and why is it important?
RegTech is a combination of two words – Regulatory Technology. It means “how can we apply technology to communicate policy, execute oversight and enforce that policy?” It’s about automation of rules and processes so that regulation becomes more efficient and effective.
Regulation is actually a combination of three elements – the actual designing and communicating of the policy, the oversight of the execution of the policy, and then the enforcement. When something goes wrong, what happens? How do we execute the rules that are embedded in the policy?
Regtech is about endogenous regulation, which means how an industry adapts or incorporates technology to regulate itself from inside, by self-applying and self-enforcing regulations.
HODL Finance believes that the absence of rules within the crypto economy is one of the key reasons why this market is experiencing hardships. Can regulation help to overcome this so-called “crypto-winter”?
The absence of regulation can also be a positive thing. It has been positive for some because you start doing things without the fear of breaking any rules, right? By executing well in a formally unregulated environment you can grow really fast. Some people, unfortunately, do behave recklessly in such environments.
But when you start building something serious, you face the problem of potential future liability. Am I going to get in trouble at some point in the future? What is the limit? That is when you start needing regulatory clarity. When you’re really serious about disrupting an industry you need to think strategically, anticipate how they environment might change, and plan accordingly.
Probably the worst possible course of action is “to take the policy that exists today and apply it to a new world”. For example, taking the body of securities, payments or insurance law, and applying it to similar products done with a completely different technology such as the blockchain is going to have a very negative effect on innovation.
If you are a serious, responsible, innovator, you have to implement basic safeguards for consumers and comply with, at a minimum, the basic regulations. At the same time, you definitely have to start working heavily on influencing the redesign of regulation for the new technology.
What is the “right amount” of regulation or “smart regulation”? How to reach a balance between the need to pursue business growth and facilitate innovation, while ensuring that people were following the rules?
There has to be responsibility on the side of the industry. If you’re launching a product, you cannot just do it recklessly, without any controls, zero concerns about safety. That is particularly important in financial services. To me, the first constraints should be self-imposed by the industry.
In any industry, either it regulates itself, or it gets regulated externally. It’s a choice.
You launch a product, even if there’s no regulation, you need to embody the spirit of the regulation, by being transparent with consumers, respectful of their privacy, protective of their money. You execute fast, you have a consumer support function, responding to requests, you build an infrastructure of service, even if there is no regulation.
Besides opening so many new possibilities blockchain introduced, crypto businesses attracted a lot of criminals and people that are using criminal like techniques. What are the ways for honest businesses to defend themselves from such bad actors, while we still have very few rules?
The product must be accompanied with education to the consumer about why the new product or service is better than the alternative, and how it compares to alternatives. Consumers are smart. They understand clear, honest explanations.
For instance, when you land at the JFK, New York, there are public announcements informing passengers “Do NOT accept offers – solicitation of service from unauthorized people. They could be unlicensed, and overcharge you at the beginning or end of your trip.” And you understand that they could also do worse things, like kidnap you.
Whoever manages the airport, is educating the consumer about the legal options. Go to the taxi dispatcher, the only authorized cars are yellow or use an Uber, the only guarantees of a good and fairly priced service.
Similarly, when I launch a business, I’m committing to the honest delivery of a product or service. Business is about reducing the fears, uncertainties, and doubts of consumers.
The regulation of the crypto economy is scarce, but most importantly, it’s country-specific. How to cope with this dilemma when businesses operate globally but rules are built locally?
Why do people teach their kids English? Even if they are in Lithuania, Poland or South Africa? Because English is a lingua franca. If you don’t speak English, you don’t participate in the global economy. We must have instruments designed to be global. One of those instruments should be regulation.
In some cases, it already is. If you think about, for example, aviation standards, they are global. You jump on a plane in Lithuania, and in Patagonia, and in Siberia, and there’s going to be a process of onboarding, of controlling the passengers, verifying their identity, the ownership of the ticket, the security announcements.
Worldwide aviation standards are the perfect example of a harmonized body of law and regulation.
Why is this not happening in other areas? Only because it’s in the best interest of some businesses not to create harmonization. Because information means symmetry. It creates power and opens new business opportunities.
HODL Finance is the European digital lending company. HODL Finance issues loans backed by cryptocurrency and other digital assets. Founded by the shareholders of the peer-to-peer lending platform, Savy, HODL Finance now serves clients around the world.