Reimagining roles: How regulated industry leaders are shaping the future of finance

Innovation is often pitched against rules and regulations as though the two must necessarily be opposed to—or at least in tension with—one another.

Experience does not quite bear this cliché out. We’ve seen at the London Blockchain Conference 2024 the role that large incumbent leaders—the likes of Boston Consulting Group—are driving innovation forward despite (to use another cliché) the reality that large institutions are akin to enormous super-tankers, which is carried forward by a near-unstoppable momentum and for which any change of direction is not quickly achieved.

In truth, these large institutions may even have an advantage over their more agile counterparts. They have exposure to and experience with a vast and diverse client base. As a testing ground for new market solutions, they are, in many ways, the perfect candidate. And as a fully-regulated and compliant option for gaining exposure to digital assets, they’re nearly unbeatable.

This was the focus of the final panel of the London Blockchain Conference 2024.

• Laurence Lewandowska, CFO and COO at BSV Association (and moderator of the session)
• Hlynur Þór Björnsson, CEO at ISX
• Nestor Palao, head of DLT and corporate clients at Sygnum Bank
• Wojciech Kaszycki, chairman and founder at Mobilum

Lewandoska introduced the session with, “We’re interested in how we bridge blockchain with traditional finance.”

The three panelists on stage were well-qualified to discuss the subject. For instance, Palao explained Sygnum Bank’s mandate and mission: to allow institutional investors to access digital assets with complete trust.

Kaszycki explained that Mobilum’s mission is to be a bridge between traditional finance and the digital asset space. As such, they provide multiple programs which help the industry leverage the value of traditional finance systems: banking rails, payment cards, liquidity provisioning and so on.

Björnsson explained that ISX has recently pivoted to opening up their own exchange to international customers and they’ll be rebranding from ISX to OrangeGateway. Björnsson added that they have been open to the Icelandic population for years, onboarding everyone from mom and pops to large corporates. Their focus is to help onboard anyone who wants exposure to digital assets. Bjornsson also said that OrangeGate is introducing a BSV on-ramp for their service.

The first question to the panelists, though, was aimed at Sygnum’s Paloa. “In what ways has Sygnum Bank positioned itself for the onboarding of traditional asset holders into this digital world?”

“I’d say that’s one of the main missions of Sygnum, but with a caveat: we are dedicated to onboarding new users and corporations into this industry with complete trust. We believe that the industry needed the backing of a fully regulated counterparty. This is what we wanted to bring,” he answered.

Far from holding his own bank out as the one-stop solution for those seeking a more trusted counterparty in the industry, Palao said plainly that the industry still needs more regulated counterparties.

Kaszycki went into more detail on the pre-paid cards mentioned in his introduction:

“In terms of the cards, in the digital asset space where you have your holdings, sometimes you want to use it as your net wealth. That’s not an easy thing: you have to somehow convert it to fiat. You can do that through a bank, but what we are providing is a wallet you can download that connects onto an exchange or on your mobile device. The cards, which are fiat cards, can be topped up (for the debit card).'”

They will soon be offering a credit card program, though he mentions this as an example of where regulation presents added obstacles due to the incumbent rules around lending.

Kaszycki is also effusive about the positive effect that MiCA—the EU’s new digital asset regulatory framework—and the BTC ETFs approved at the start of the year will have on the industry and the trust that individuals and corporates are able to place in it.

“With the [BTC] ETFs and MiCA. We had an opportunity, finally, to open bottles of champagne. The digital asset space is waiting for the regulations. All of you felt at least once an issue with the bank—sending fiat to exchanges and so on. It’s not like banks do not like the space (gesturing to Sygnum)—the problem is the banks are more regulated than us. They are asked the question why they allow certain activities and how it fits their risk policy,” he said.

“The problem is, as long as there is no proper regulation, banks have to leverage the space in a very simple way.”

Both the events he mentioned—ETFs and MiCA—act as a statement that the digital asset class is something that is now available to traditional institutions. That’s why, said Kaszycki, it’s such a win for the industry.

Björnsson adds that the space is still filled with fraud, which will be a challenge for the regulators trying to root out the bad guys. We’ve seen big players in the space go down for money laundering, and that will continue to be the biggest challenge for regulators.

“Get the bad players out, and hopefully the regulated entities will take over the space and it will be much more healthy,” he said.

Palao also pointed out that the regulatory landscape is very regional. Switzerland, for instance, where both his own Sygnum Bank and Kaszycki’s Mobilim operate, is the jurisdiction widely considered the most favorable to digital assets. It is, after all, home to the well-known ‘crypto valley.’

“Exploring different markets, we see all the different regulators that are venturing into creating clear regulations for the industry. That’s a bit of the challenge: having clear regulations,” Palao remarked.

“In many cases we see the regulator looking at innovation through the eyes of the past. In many cases, it’s difficult to apply the traditional rules of the game.”

But Palao is quick to point out examples of regulators who are truly willing to take a step ahead and build regulations that not only apply the rules of the past but also adapt to the market’s needs.

Kaszycki agrees and adds: “Digital assets are based on the blockchain but they can represent different kinds of services. It’s a headache for regulators to apply the same rules, and it’s because in digital assets we might have a stablecoin, a derivative, and regular utility coins. What MiCa bings to the market is that it defines clearly who takes care about what. Stablecoins are under the banking system. Financial instrument—security and exchange commissions.”

Lewandowska then asks how the panelists have positioned themselves before regulators.

Björnsson says one of their strategies at ISX has been to align themselves with BSV blockchain, as one of the most scalable blockchains out there.

“What I see in the coming five or ten years is that tokens, or the tokenization of products and services, will need the most scalable solution. By offering BSV as a main trading pair, we are pivoting to service that market. Maybe it will take five or ten years, but I think in the end, all these Web3 applications need a scalable solution. It’s why we are broadening our horizon,” he said.

Palao adds: “One thing you realize working in banking—the same way we talk about protocols in blockchains, all our payments also run on protocols. SWIFT is a protocol—but it’s one of the most outdated ones in history. It’s closed on the weekend, doesn’t offer instant finality and so on. So one of our roles is to adopt and allow customers to utilize alternatives to these that we believe can be superior.”

Watch: It’s time for regulation to enable blockchain growth