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The views and opinions expressed in this article are those of the author and/or quoted individuals and do not necessarily reflect the views or positions of Web3NZ and Callaghan Innovation.
The Government’s subdued response to a two-year inquiry into cryptocurrencies has left the industry calling for action to avoid New Zealand “falling even further behind”.
The Report of the Finance and Expenditure Committee on the Inquiry into the Future Nature, Impact, and Risks of Cryptocurrencies, was released on 17 August, as political parties geared up to contest the 2023 general election.
Cryptocurrency regulation didn’t come close to featuring as an election issue, but the 22 recommendations listed in the report included some concrete measures the Government could take to advance the development of the cryptocurrencies and digital assets sector, while helping to protect consumers and encouraging innovation.
It advised against establishing a regulatory framework for digital assets now, but instead taking a lighter touch approach, addressing problems as they arise, and creating “coherent and consistent guidance on the treatment of digital assets under current law”.
Other key recommendations among the full list of 22 included:
- The digital assets industry, in conjunction with regulators, develops a best practice code or guidance with minimum standards for the custody of digital assets.
- Bring digital assets into the regulated financial advice and client money–client property services regimes by directing MBIE, in consultation with the Financial Markets Authority, to add a class of digital assets which are used for investment purposes, as a new category of “financial advice product”.
- Direct the FMA (as lead agency) to establish a formal sandbox to allow organisations to test innovations in digital assets and digital asset services.
- Don’t appoint a primary regulator for digital assets, but direct the FMA to set up a sub-committee of the Council of Financial Regulators for digital assets and virtual asset service providers, made up of relevant government agencies.
- Have the Ministry of Business, Innovation, and Employment explore whether the proposals made by the UK Law Commission, including introducing a third category of personal property (data assets), should be introduced here as a legislative intervention.
The Finance and Expenditure Committee overseeing the inquiry, was chaired by labour MP Ingrid Leary and featured future finance minister Nicola Willis, future consumer affairs and commerce minister Andrew Bayly, and future Greens co-leader Chlöe Swarbrick.
The committee was advised by digital assets experts Jeremy Muir, a partner at MinterEllisonRuddWatts, and University of Auckland commercial law professor, Alex Sims.
The recommendations were fairly conservative and pragmatic, aiming to tweak existing laws where needed and urging the Government to promote innovation and education to ensure New Zealand was well-placed to take advantage of the burgeoning market in digital assets, blockchain technologies and cryptocurrencies.
Crypto in a holding pattern
So the 2-page response from the coalition Government issued on March 7 frustrated many in the industry.
While the Government expressed its support for “growth in the digital assets industry” it also noted that there are “evolving risks to markets and investors from digital assets, and cryptocurrency has been an enabler of ransomware and some other transnational crime and scams”. It was “Actively monitoring” international developments around the “treatment of digital assets and will continue to consider appropriate policy settings to manage these risks”.
After listing a few digital assets-related initiatives currently underway across government agencies, it then signed off by noting that it would “continue to monitor international market developments”.
It reads like a new government putting the whole issue in a holding pattern until it has time to formulate a policy approach to the whole digital assets space.
“Hopefully, this is a placeholder, and the Government continues to listen to industry and experts and we are able to move forward alongside the rest of the world,” Muir wrote on LinkedIn.
He and Sims had recommended New Zealand adopt a “more proactive approach to the relationship between regulation and innovation”.
Where’s the urgency?
A regulatory sandbox would encourage blockchain startups to experiment with new technologies while developing a best practice code with minimum standards for the custody of digital assets would be a good way to get the digital assets industry on the same page. But the Government didn’t adopt a single recommendation, or signal any particular direction of travel on policy matters at all.
BlockchainNZ’s executive director, Alison Mackie, said the Government’s response “lacked action”.
“The acknowledgement of the potential benefits is a positive sign. However, without concrete actions and a sense of urgency, New Zealand risks falling even further behind.”
She pointed out that other countries around the world, Hong Kong, Singapore and the United Kingdom, have all introduced regulatory sandboxes. Our ambivalence on digital assets at a national level inevitably makes us a relatively less attractive place to develop Web3 technologies. The 2023 Geography of Cryptocurrency Report from Chainalysis – ranked New Zealand 89th out of 154 countries - Australia claimed 40th place.
“There is also a huge potential for New Zealand to emerge as a regional digital asset hub, capitalising on a burgeoning multi-billion dollar market. By implementing a regulatory sandbox and nurturing the blockchain ecosystem, New Zealand stands to create high-value jobs and generate substantial tax revenue,” said Mackie.
Big Tech’s payments play
For Immersve founder and CEO, Jerome Faury, dragging the chain on moves to enable the Web3 ecosystem to grow and encourage uptake of blockchain-based technologies, could limit New Zealand’s ability to steer its own path on digital assets, digital identity and the future of payments.
“There's a real lack of leadership, both in government and I think in the large fintech banking community,” he told Web3NZ.
“I think there's lots of short-sightedness, a lot of let's kick it down the road, it's not going to happen.”
Immersve’s platform let’s cryptocurrency owners use the Mastercard network to make purchases at retailers seamlessly, drawing on USDC stablecoins stored in a user’s digital wallet. Digital identity, cryptocurrencies, and payment technologies are rapidly evolving and without a strategic approach, we’ll fail to innovate sufficiently to take advantage of them.
“Big Tech in particular is going to invest heavily and innovate in payments. You're going to see Apple, Google, Facebook, Samsung, providing consumer payment experiences, I can almost guarantee that,” said Faury.
“If you look at history and the importance of currency and taxes and what they mean to society, if we lose New Zealand dollar, and people start transacting in the AU dollar or the Facebook dollar or the Apple dollar, that's not going to be good for this country.”
The views and opinions expressed in this article are those of the author and/or quoted individuals and do not necessarily reflect the views or positions of Web3NZ and Callaghan Innovation.