Episode 5

August 07, 2023


TPR Ep. 5 - Mike Castiglione, Director of Regulatory Affairs, Digital Assets at Eventus: IOSCO’s Recent Recommendations for Crypto and Digital Asset Markets

Hosted by

Shylia Ward Jason Dukes Dave Uhryniak
TPR Ep. 5 - Mike Castiglione, Director of Regulatory Affairs, Digital Assets at Eventus: IOSCO’s Recent Recommendations for Crypto and Digital Asset Markets
TRON Policy Report
TPR Ep. 5 - Mike Castiglione, Director of Regulatory Affairs, Digital Assets at Eventus: IOSCO’s Recent Recommendations for Crypto and Digital Asset Markets

Aug 07 2023 | 00:42:33


Show Notes

DISCLAIMER: The contents of the TPR podcast and the opinions expressed therein are solely for informational purposes and do not constitute financial, investment, or legal advice.


TPR (TRON Policy Report) Episode 5 - Mike Castiglione, Director of Regulatory Affairs, Digital Assets at Eventus and former CIA discusses IOSCO’s recent recommendations for crypto and digital asset markets.


Listen to more at https://tron-policy-report.castos.com/

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Episode Transcript

Speaker 0 00:00:00 <silence> Speaker 1 00:00:06 The contents of the T P R podcast and the opinions expressed therein are solely for informational purposes and do not constitute financial investment or legal advice. Speaker 2 00:00:14 Alright, thank you for joining us and welcome today to this episode of the Tron Policy Report. Uh, from time to time, we like to host the TRON policy report. We bring together experts from around the industry to discuss the ever evolving topic of regulation in the crypto markets. Um, we know this is always a, you know, interesting and, and rapidly evolving, uh, topic, so we always want to stay on top of it and be bringing to our community, um, the new and interesting ideas of experts from around, uh, really from around the world. Uh, my name is Dave Rnac. I'm the Ecosystem Development leader at Tron Dow. And with me today, uh, I think we have a very, uh, special guest, and I'm excited about this podcast. Uh, his name is Mike Castiglioni. Um, now Mike is highly qualified to discuss the topic of crypto regulation. Speaker 2 00:01:12 So, uh, a bit about his background following a double major of international relations and economics at Michigan State. He went on to receive his Master's of Public Affairs at Princeton, and then he spent nearly 15 years at a organization you might've heard of, called the Central Intelligence Agency, the C I A. So now Mike is the director of Regulatory Affairs and Digital Assets at Aventus and at NTUs, he focuses on financial, co financial compliance, and brings innovative tools, uh, to a very, uh, global audience to help them deal with, uh, such topics as fraud. So, welcome Mike. Speaker 3 00:01:58 Great to be here, Dave. Speaker 2 00:01:59 Sure. Yeah. Today, uh, I thought we'd talk about, uh, the recent paper by iosco. They made, uh, they released a paper in May, and they made about 18 policy recommendations in that paper. And I think it's, uh, I think it's relative. One, because it didn't get very much press, um, or at least the press, I thought maybe it deserved around the time it was published. Um, and I wanna focus on that a bit because it may have implications down the road for what we see globally, um, as, uh, you know, countries start adopting, uh, greater regulation, putting in really more guardrails around the crypto industry, um, as it evolves. So, Mike, first, uh, what is IOSCO and why is it relevant? Speaker 3 00:02:51 Yeah. ASCO is a international body that brings together securities regulators, uh, from really, uh, all countries, uh, multiple jurisdictions. I think they, uh, uh, they, they say that they cover 95% of the world's security markets. So it is a forum, an international forum where, uh, securities regulators gather and they create standards. Um, and the idea is that that form creates standards, and then they encourage the national governments of the members to adopt those standards. Um, so ASCO includes the us So the C F T C and S E C are members of iosco. Mm-hmm. <affirmative>, um, the eu, European regulators, uh, Asian regulators like Singapore, Hong Kong, and China. China's a member as well. Uh, so these are the, the, the big regulators that matter when it comes to, um, financial securities. Speaker 2 00:03:49 Now, the, the, their paper or their recommendations focuses on crypto asset service providers, what they refer to as CSPs. So could you define for us what is, what exactly is a crypto asset service provider? It maybe provide some examples. Speaker 3 00:04:05 Yeah. A castp it as defined by IOSCO and other organizations are just very similar to, um, what the a m L world would label AVAs virtual asset service provider. Um, okay. So it's, it's just a, just a shift of, of terminology. Um, in, in essence, it is a firm that provides, um, that, that allows their clients to trade, to make payments with digital assets in, in any form that's at a high level. It can include, um, crypto exchanges, like the big names that we, we know. Um, it can include trading firms that are trading for clients. Um, could be, uh, money service providers, could be custodians. So it, it, it's defined, uh, rather broadly. CSPs also come up in the use new, uh, law called Mika Speaker 2 00:05:01 In use. New what? Speaker 3 00:05:03 The, oh, the European Unions new, uh, law. So, okay. Ca CASP is a term that comes up in, in that, Speaker 2 00:05:10 In Mika. Okay. Speaker 3 00:05:11 In Mika as well. Exactly. Mm-hmm. <affirmative>, yes. Mm-hmm. Speaker 2 00:05:13 <affirmative>. So when IOSCO comes out with this recommendation, it's really, um, saying, you know, these, these bodies, all our members, we got together, we came up with some ideas, and this is what we're thinking of implementing in these various regulatory bodies around the world. Speaker 3 00:05:32 Exactly. That accurate. Exactly. Yeah. That's, that's accurate. Yeah. Yeah. In a, in a way, um, you know, even though ASCO and many other international standard setting bodies don't have direct authority to implement laws or enforce laws, they are very helpful, helpful in a, in a diplomatic sense, international, um, sense to kind of smooth the way for national governments to make decisions. So if you can, you can imagine a jurisdiction who's debating what to do with this new emerging asset class called crypto. And Ioco has a lot of heft. Uh, so it's much easier, you, you kind of reduce the policymaking risk, uh, and reluctance for national government once Ioco kind of blesses, uh, a set of recommendations. So this particular paper, yeah, it's, it is a policy recommendation. It's a, it's a policy proposal. Uh, they are taking, um, comments, comments are due the end of July. Speaker 3 00:06:29 Yeah. And their idea is to finish or publish their, their final report by the end of the year. Mm-hmm. <affirmative>. Um, and again, this will be something in the ether that national governments can kind of pull onto, um, one significance of, of this particular report. I mean, I, I personally feel that, you know, if, if you want a high level sense of where regulators are going globally regarding crypto, like this is a great place to start because it, it just fills many of the themes that governments across the globe are, are dealing with. It includes conflicts of interests, um, how to handle orders for crypto trading, handles, disclosures, or, uh, CSPs and also disclosures for crypto issuers. Mm-hmm. <affirmative>, it deals with custody and cyber risk. And for NTUs, what's important to us is it, it also handles market manipulation and how to really pull the lessons and the patterns that we see in other asset classes to crypto and have, uh, kind of a structure of how to reduce the risk of price manipulation and other market abuse. Speaker 2 00:07:35 Okay. Yeah. I, I, in going through the, the proposals, I thought they were all fairly common sense, uh, for the most part, things that industry probably needs to evolve. But one thing that kind of struck me is that in the first recommendation, they say the regulatory approach should seek to achieve regulatory outcomes for investor protection and market integrity that are the same as, or consistent with those that are required in traditional financial markets. Right. So, okay, that's fine. But, but the implication of that, or what that infers is that crypto assets should be regulated as securities. Right. And that's very, uh, that's very up in the air at this point. Would you agree? Speaker 3 00:08:28 Yeah. I mean, it, it is a, uh, it is a, um, place for securities regulators to come together, um mm-hmm. <affirmative>, but I think the, the, the debate whether crypto or a particular token is security commodity is, um, you know, gets a lot more attention in the us. Um, because, because the US has two separate, uh, regulators based on kind of historical kind of accident. And the way this legislation kind of came piecemeal from the thirties onward. Um, many other jurisdictions have one regulator that will oversee all financial asset classes, whether it's a commodity or a derivative or, or a traditional security like a stock. See, so for examples, Singapore has one regulator, um, Speaker 2 00:09:18 To over oversee and they monitor all asset classes. Speaker 3 00:09:22 Exactly. The UK has the, uh, Speaker 2 00:09:24 So securities and nons securities Speaker 3 00:09:26 E Exactly. Securities and commodities and, and other financial, right. Exactly. Um, so Speaker 2 00:09:32 Really the US is the only country where this is an issue where this whole securities classification is an issue. Speaker 3 00:09:38 It is, it is disproportionately important in the United States because of this, the, the, the overlay jurisdictional kind of debate that's, that's happening. And also the, um, um, yeah, the, the, the, the rules that kind of flow from that. Uh, so, so one, so one situation where we have in in the United States is, um, you know, if you're, if you're a security, certainly you go under the S E C and an S R O called finra. If you are a, if you are derivative like a futures or an option, you fall under, uh, the C F T C. But right now, the United States, it's like, you know, uh, this is the problem that so many people have identified is that there, there's the gap, and the gap is if you're a commodity, uh, um, it's called the spot market or the cash market. Um, yeah, the C, the C F T C has authority to prosecute and find fraud, but only after the fact. Um, so we're not in a situation yet in the United States where there's a, a regulator that can make sure firms have the right controls in place before, um, doing business in the commodity spot market. Speaker 2 00:10:53 Okay. That's really interesting. Um, so there's a lot going on there, but, so just one thing that comes to mind is that right now, with so many governments around the world looking at CBDC and stable coins, uh, how would this impact the issuance of A C B D C? Does the government then become a casp? Speaker 3 00:11:21 Hmm. Uh, this, this particular report doesn't touch on C BDCs directly. Um, so yeah, I, I, you know, I see the, where, where the C B D C debate is right now is, is mm-hmm. <affirmative> more like r and d and experimentation and, um, you know, uh, I guess governments one debating, do they have the capacity to pull it off mm-hmm. <affirmative>, and that's debatable, uh, and very true. Right? And then what's, what are the technical specifications, the kind of the talent, the engineering kind of backbone you need for that mm-hmm. <affirmative>, um, and then too, what, whether it's desirable, um, and, and whether, you know, it fits within, um, you know, the, the national policy for national for competitiveness and free markets for centralized control mm-hmm. <affirmative>. Um, and then the other overlay is kinda like the debate about, um, civil liberties and whether it is a, a step or these step toward, uh, too much, uh, governmental financial control. Speaker 2 00:12:31 Right. Yeah. There, there are many issues with cbdc. I I certainly don't disagree that, and, um, you know, I'm not here to advocate one way or the other for c BDCs, but according to this paper, and based on some definitions of what might be considered to be a crypto asset service provider, uh, I think that it's possible that governments would fall under the category or classification of being a crypto asset service provider. And in which case, um, that would mean that they would have to, uh, adhere to some of the, at least some of these regulations, um, which, you know, that's more questionable whether they would want to or not. Um, a different way to go might be, um, you know, how, how this would impact stable coins, because right now in the market, I think we are seeing, well, we're definitely seeing the proliferation and adoption of stable coins, right? They're, I think they're becoming, um, more used for a variety of, um, purposes, you know, getting, getting much more common in payments. And does, my question is that, does um, or do stable coin issuers then fall under, uh, the CASP umbrella? Speaker 3 00:13:55 Yeah, they, they certainly might fall under the CASP umbrella. Um, this is, yeah, this is the, uh, this is where you'd have to go jurisdiction by jurisdiction and Okay. And really understand, um, like the, the requirements. Um, and you know, what you need to do to, to comply. Obviously in the United States right now, it's state by state or money transmitter licenses. In Europe, uh, the new law Mika is trying to, um, create a, a broader umbrella and mm-hmm. <affirmative>, um, allow while stablecoin providers to passport their license across all member states. Um, and then, uh, really interesting, uh, countries like Singapore are ex experimenting, putting, you know, putting, um, you know, public sector dollars in experimenting with, uh, innovative products like CPCs or stable coins or ways to process cross-border payments. Speaker 2 00:15:00 Yeah. Yeah. So this is gonna be interesting to evolve and, and to be clear that this is, this doesn't cover defi that comes later this year. Um, so we'll see. Maybe there's more color on defi, um, or or more color on stable coins as the defi paper comes out and those recommendations come out. Speaker 3 00:15:22 Yeah. The interesting thing about, yeah, the interesting thing about, um, yeah, the Defi report. So the, the DFI report is being, um, is being written. I guess what we expect it later this summer. Oh, okay. The task, the task force that's writing that report is chaired by the S E C, so we can kind of anticipate a certain spin or flavor ah, that's interesting. Out of that report. Um, and, and it, this is to say that when, when you look at international discussions about crypto regulation, you know, my, my sense is that there is a global consensus emerging mm-hmm. <affirmative>, uh, certainly there are, uh, very complex technical issues regarding like implementation. The security commodity, uh, debate in the US defi is gonna be, uh, um, complex. 'cause it's really, it's like, like a new thing. It's a new, new way of transacting and, and right trading. Speaker 3 00:16:26 Um, but, you know, regulators globally, including the C F T C and S E C are involved in really detailed conversations through, um, like ioco and, and other bodies. And some of the emerging pieces, pieces of crypto regulation that I think are falling under this consensus is certainly the, the, the A M L, you know, counter financial, uh, terror financing pieces. Yeah. Um, and also, um, a, a robust regime to monitor for market manipulation and to take steps to counter market manipulation that I, I see, I see this piece in Mika, which is mm-hmm. <affirmative> on the books and will be fully, uh, en, uh, enforceable by the end of 2024, uh, Singapore Hong Kong are, are in injecting, uh, market manipulation, anti-market abuse rules mm-hmm. <affirmative> and checks, um, into, uh, into their policy framework. The uk the UK's most recent policy, uh, proposal, um, is talking a lot about how to basically monitor for market abuse in a way that is very consistent with current, like other asset classes. So yeah, big picture, big picture. This is, um, there are big pieces coming together, um, that represent a global consensus of, um, you know, how do you, how do you regulate, how do you create guardrails around this industry? Speaker 2 00:18:02 Yeah. I think that's really interesting. Is there one country that you would say is further ahead than the rest and might be leading the way? Speaker 3 00:18:13 I mean, it's hard to keep score for Yeah. On, on legislation or, or economic policy like this. Um, but in terms of like stating objective facts, I mean, the EU has passed a comprehensive law. Speaker 2 00:18:26 Yeah. Speaker 3 00:18:27 Um, the UK is, is debating, has, has a policy propo proposal and is debating this mm-hmm. <affirmative>, um, and then what again, really interesting jurisdictions like Singapore, um, yeah. Where you have a regulator that is certainly against cautious against retail customers trading in crypto. Uh, but are there bullets in terms of the underlying blockchain technology in transforming Yeah. The financial infrastructure. Speaker 2 00:19:02 Yeah. That's, that's great. We are seeing, you know, I, I think we're seeing a great deal of adoption come out of Asia. Um, Europe, what's interesting about Europe, they, they are leading or a leader in developing, um, you know, the regulation framework, but a adoption crypto adoption overall by the population, um, certainly in the uk and I think throughout the EU is relatively low. So we'll have to see how, and that might be a cultural issue, it could be a variety of issues, but we'll have to see how that, um, plays out over the next few years if, if greater regulation does lead to an acceleration of, um, you know, adoption by the broader population. Um, Speaker 3 00:19:44 Yeah. And I, I'm in, I'm in Washington DC and, and, uh, go to Capitol Hill, talk to government officials, uh, uh, periodically, and something that is being raised, uh, more often, especially this year, is the national security and US competitiveness argument, uh, really regarding crypto and, and the, like, the, the broad trend, especially this year is, um, many other jurisdictions that are not leading in financial innovation right now see crypto as an opportunity to leapfrog. Yeah. Uh, and, and are placing, you know, placing betts or, or, you know, placing hedge cautious betts, they're not all in. Right. You know? Mm-hmm. Again, crypto's still an emerging technology. It's, it's very amorphous to understand what world beating industries or companies might emerge from it. There's a debate on how early it is still in terms of a world changing, um, technology, but many of these countries, you know, see this as a moment to take on a leadership role. Speaker 3 00:20:50 Uh, yeah. And the leadership role could have, um, you know, positive effect for them in terms of their, their, their ability to track investments, um, their, their role as a financial innovator and also the future of the internet, and whether they will, whether investing in foundational blockchain technology will help them attract the talent that Yeah. Can have a positive spillover effect to, um, to other industries. So, you know, with, with my national security background, you know, I think a lot about the kind of the direct and indirect short-term and long-term ramifications of emerging technology. It's one of the, yeah. One of one of my responsibilities that I had, uh, at the c i a. Speaker 2 00:21:39 Yeah. It's really interesting. Um, I, I think one of the, I know one of the cities that we see really trying to push ahead and I think is doing a good job is Paris, right? And you see it Paris, London, uh, Berlin, you know, kind of becoming these European hubs. If you can have multiple hubs, um, for crypto, um, in Europe, you know, is that, you know, I think for Paris it's probably the biggest deal because they're, they seem to be making the biggest push, at least, you know, they've announced it, um, and it seems to be working. Yeah. So is that, you know, kind of what you're seeing Speaker 3 00:22:16 Yeah. This idea, the UK also, so they wanna be a hub, um, yeah. Middle East. Yeah. The u a e, both Abu and Dubai are, um, you know, making moves, carving out, um, unique regulators to look at crypto and to attract, attract talent and business. Speaker 2 00:22:35 Yeah. Speaker 3 00:22:36 Um, yeah, because, because one, one way to think about it is, um, you know, the, you know, the, the tech excitement that comes with kinda experimenting or being early in a, a new technology, um, has, has like a, a logic in its own, and it could lead to, um, unexpected gains, right? Like, you, you have to, if you, if you can create an ecosystem that channels some energy channels, some of that entrepreneurial startup energy, you can create a, a virtuous cycle in terms of attracting the next round Speaker 2 00:23:15 Exactly. Speaker 3 00:23:16 Of investment and, and entrepreneurial spirit. Um, and then, um, you know, that can have, you know, like that again, the early seed of, of, of attracting energized entrepreneurs can, can really grow in unexpected ways and have profound, um, ramifications for a country's economy, for a country's resiliency and its own self-sufficiency. Speaker 2 00:23:42 Yeah. Yeah. I think you're exactly right about that. This is, this is giving this whole situation of crypto and blockchain, it's really providing this, and relative as it relates to what's happening in the US and the position the US has taken, is that it's providing these countries that, you know, weren't necessarily huge financial players, although certainly London is, but it's giving them the opportunity to almost become the next Silicon Valley slash, you know, Manhattan to where they have this innovative culture with startups as well as, you know, be a center of, uh, these modern financial services or the next generation of financial services. Um, and I think that's really, it's really something that's being overlooked. And as it relates to the iosco, I think regulation and adoption of regulations, uh, the faster it can be done really facilitates that, that growth and that potential. Right. So, so from that aspect, what you're saying is exactly right, that it's, uh, we really have to watch this because it could lead to a shift in the, uh, our centers of financial services. Speaker 3 00:25:00 Yeah. Just one, one historical analogy. Um, I, I grew up in the Detroit area, uh, so Speaker 3 00:25:08 Absolutely keen on the history of the automobile. Um, and, you know, we, we kind of all know the story. It went from, you know, hundreds of thousands of startups consolidated eventually into a handful of big th you know, the big three Yeah. Into the 1950s. But the, the interesting story of the evolution of the emerging tech called the automobile horseless carriage was that in the early 19 hundreds, like automobiles were criticized, and they were, they were criticized for being useless. They were criticized for being dangerous. And, you know, those critics thought like, only like thrill seekers and the wealthy wanted automobiles. And the odd thing is like all those criticisms were, were accurate at the time, but what the critics failed to, to predict is that the auto industry of the 19 hundreds did, you know, does not equal to the auto industry of the 1940s, but you need the 19 hundreds version to get to the 1940s. Speaker 3 00:26:05 Um, yes. So like, so in terms of like thinking about the national security and, and US competitiveness angle of this, you know, you know what happened in 1941, and basically the US entered World War II and the auto industry that just a generation ago was criticized for being useless. And, you know, aimless and dangerous, you know, actually became the foundation of the Arsenal democracy. Uh, you had people like, uh, William Musson, who is former head of gm, you know, get tapped by F D R to lead industrial production. And, you know, it's, it's not a overstatement that, you know, this, this, you know, once criticized industry helped beat the Nazis, um mm-hmm. <affirmative>. So like, you can kind of think of like an alternative universe. And, and, you know, parallel to what we're seeing today is like, what if, what if the critics of the auto industry won in the 19 hundreds and kind of shaped US policy in a more disadvantaged, disadvantaged way. Mm-hmm. <affirmative>, uh, we kind of know how that would play out because the, so the uk uh, auto industry UK policy during that time was, you know, less pro innovation than the United States. They had, um, some really weird laws that they had in the books for decades called Red Flag Logs that that hamstrung the early auto industry, really. Speaker 3 00:27:29 And by the time, you know, you know, um, the loof waffle was flying over the uk. I mean, the U UK had a pretty robust auto industry, but were certainly behind Germany and, and the US mm-hmm. <affirmative>. Um, and so this is an example of, you know, shortsighted policy, you know, a like potentially harm, you know, potentially harming a technology and, you know, reducing options down the road or, or making a country more vulnerable or less safe. Um, so this is, this is just one example. Like I think this, this kind of example can apply to, uh, many other emerging technologies that we're, we're dealing with today. Um, yeah. But it, it's, it's an important lesson to remember that there are kind of second or third over ramifications in deciding how to embrace or push away. Uh, yeah. And what incentives you in embed in the policy response to emerging tech. Mike, Speaker 2 00:28:34 That is a great point, and I really hope that policymakers in the US hear that and, and take that to heart because that really is, um, it's really true and it's very profound and, uh, I think it's something, really something that the US needs to adopt to remain a leader and remain competitive in this new space. Um, but let's shift gears for a minute. I'd like to talk a little bit about fraud and just kind of what you're seeing there and, uh, you know, how this relates to ioco. So in terms of fraud from a, from a, you know, centralized exchange perspective and decentralized exchange perspective, is there one, you know, just start to start off, is there one that you see having more fraud than the other? And is it, you know, would you call it statistically significant at all? Speaker 3 00:29:25 Yeah, just maybe I can just ex explain the, the, um, the, the layout of why, um, combating market manipulation is important and, and how it is generally done kinda at a high level. Sure. Okay. So for, in the, in the US for instance, it, the requirement to, um, to combat, to guard against market manipulation, you know, comes from the Securities Act of 33 and 34, mostly 34, and also by commodities Exchange Act of of 36. So this is like, these things came in response to, um, you know, manipulative behavior, you know, bad, bad, bad stories that came out of the 1929 crash, right? So people were, and, and in a situation like that, when there was a crisis, um, like these stories tend to get greater play, and then there's a moment to like embed it in, in, uh, legislation. Um, and then, so since the, the thirties, we've had, um, you know, you know, decades of kind of aggregation, policy guidance. Speaker 3 00:30:40 And, and then also we have, uh, like a, a slew of self-regulatory organizations like FINRA and the N F A for, for commodities that have their own rules of mm-hmm. <affirmative> of what firms to do. So. So in terms of like, so what is market manipulation? Like the, the ones that we hear about, mostly insider dealing, insider trading. So when you have material non-public information and you're trading against it to, to, you know, have a gain or avoid a loss, um, there are, um, trading behaviors, um, that people have employed that basically put out false orders into the market to trick people, trick, trick, other participants, and then they, you know, the Speaker 2 00:31:23 Yeah. That's called spoofing, right? Speaker 3 00:31:25 Yeah, exactly. So like, you have G P SS spoofing mm-hmm. You know, where you basically pretend to be somewhere that you're not, and these are, yeah. This is, this is financial spoofing where you, um, pretend to put out an order, but you never intend to mm-hmm. <affirmative> to fill that order. Yeah. Just pull back that order, Speaker 2 00:31:43 Right. Drive the, uh, price higher. Speaker 3 00:31:46 Yep. So, yeah. So there, in terms of, um, you know, uh, market abuse laws in the United States and globally, so there are two layers. One layer, number one is you can't do it like it's illegal to try to fix prices or spoof mm-hmm. <affirmative>. Um, and then layer number two is that if you're a specific type of financial firm, you have to monitor your platform against it, right? So maybe you're a financial firm that ha employs traders, so you have to watch your traders to make sure they're not putting manipulative orders into the market. Uh, if you have clients, you gotta make sure your client, you're not routing, you know, fraudulent orders into the market via your clients. Um, same thing for exchanges, if you're, um, yeah. So, and, and Speaker 2 00:32:35 Yeah, and to be clear, you know, we don't only see this type of activity in crypto. We've seen it recently in commodities with big traditional firms doing it as well as in, uh, interest rates. Uh, in L I B O R, I believe had a big issue with the, that, um, so I'm sure your work isn't limited to only, uh, crypto, I mean, your work as a firm, you know? Right. I'm sure the traditional financial services keep you quite busy. Speaker 3 00:33:03 Yeah. We, we, our firm aventus, so we we're a tech firm, so we build software that helps those financial firms detect, uh, market manipulation and then do something about it. So basically, if you, we have the right systems in place, one, you get the license so you can actually do business. And then number two, you can detect fraudulent behavior and deter it and push it off your platform. Um, so we are global, we're across asset classes, um, and certainly do have a presence in, in crypto, um, because it's an asset class that has heft there, there's a lot of energy behind it. Mm-hmm. <affirmative>, um, and firms, you know, new firms that entered the space, you know, some, some were enlightened. Right. Some, some realized that regulation is coming, and even if it wasn't coming quickly, they needed to do the right thing now to protect their reputations, to protect their clients. Um, yeah. Um, and you know, the, the, the way we think about it is, you know, the, the manipulative patterns, trading patterns that, you know, we've seen since the 1930s and have been, you know, part of US law since then, there are patterns that you can apply to crypto. Um, and, you know, it's, IM, it's important to get that right. Speaker 2 00:34:26 Yeah. That's really interesting. It, to me, it kind of reminds me of, um, perhaps maybe the early, late eighties, early nineties when you saw a lot of, uh, penny stock trading going on. I think the movie, the Wolf of Wall Street kind of depicts it. Uh, it definitely depicts it. Um, but yeah, I think you saw something very similar then to where penny stock firms were popping up, hitting the market, selling these penny stocks to retail investors, um, at the while having undisclosed positions in them and really offloading their position to the retail investor. Right. It seems like there's a kind of a corollary between what happened then and what, what, and sometimes happens now in crypto. Speaker 3 00:35:17 Yeah. I mean, again, we're, we're a tech provider. We, we build the capability for firms to, uh, kind of discover what's happening mm-hmm. <affirmative> Speaker 3 00:35:27 Under the remit and we, and do it efficiently and, um, and accurately. Yeah. Um, but having the right tech is one piece of, of the, of the puzzle. Like certainly the having the right culture is very important. Mm-hmm. <affirmative>, um, you know, mastering your data and being able to bring the right data to the platform, um, and then, uh, having the right talent, uh, that is, is also, um, an essential piece. People who, um, you know, pe people who, who know what to look for and have the experience to speak up and do something about it when they see something troubling, um, um, in their company. Speaker 2 00:36:07 Yeah. Well, that's the, that's actually a good point. I think crypto is so new to get someone experienced. You're, you're likely pulling them from another industry. So that might be kind of challenging for a while to have really experienced people in a lot of these roles. Um, but I'm sure they can fill if, uh, you know, if the opportunity is Luc lucrative enough. Um, so, uh, we'll see. Um, okay. But then back to the sex and the decks question, are you seeing any type of divergence, um, in fraud there between the two that you might be able to share? Speaker 3 00:36:48 Yeah, we're, we, our focus is on, uh, centralized exchanges. Okay. Um, just the way we do, um, our technology is engineered mm-hmm. <affirmative>. Um, but one way to think about how, so 1, 1, 1 thing about com financial compliance is, um, is is like you, like a compliance officer will get an alert and they have to make a judgment call of what to do with the alert. And typically their systems are tuned in a way that more often than not, the alert is something maybe to investigate, but doesn't reach the threshold of, of, of fraudulent. Right. And you kind of, and, and the they do that because they don't wanna miss anything. Right. It's better to have, um, you know, a false positive and miss something, miss a, miss a true positive. Speaker 2 00:37:39 Right. Speaker 3 00:37:40 Um, of course, it, it's always a balance because if you have way too many false positives, then you just get inundated and you, you actually, uh, can't do anything about the, like, flood of alerts. Speaker 2 00:37:53 Um, so your software helps to kind of filter through those potential positives, um, right. Okay. And help the, that risk manager really do their job much more effectively. Speaker 3 00:38:07 Exactly. Exactly. And, and 1, 1, 1 thing to, to note, and you're seeing this in in crypto regulations, it's certainly the case in, in regulations and policy in other asset classes, is that the, the, and this is a tough thing for, for compliance officers, is like, this is one reason why their job is so hard is that the burden on getting this right is on the firm, it's on the compliance officer here themselves. Like they certainly do need technology providers, um, to, to empower them to fulfill their regulatory obligations. Um, but the rules are clear that is that the responsibility falls upon them, and that's why it's such a, such a heady career, right? It's likes a lot of responsibility. Speaker 2 00:38:52 Yeah. Are they personally responsible Speaker 3 00:38:55 In some cases? Uh, the chief compliance officer is responsible. Uh, there, there are, um, there are some incidents there, there are some parts of, uh, financial regulations in the United States where the, the C C O has to sign off and verify, uh, certain aspects of their compliance mm-hmm. <affirmative> regime, um, and they could be legally responsible, um, that those rules got tightened up, um, in Dodd-Frank after the global financial crisis. Speaker 2 00:39:25 Yeah. Um, yeah. Aren't the, uh, didn't Dodd-Frank makes the c e o and other C-level, uh, people personally responsible for certain issues? Speaker 3 00:39:36 That was Yeah. That was part of it. Okay. Among, among many other things. Among, yeah. Also, uh, Dodd-Frank made spoofing, you know, that, that manipulation we talked about, uh, criminally, um, a criminal event, potentially a criminal event, but jail time there, there was, wow, there was a, a case, um, early last decade where, uh, someone employed, you know, it was a high frequency trader, employed an algorithm. The algorithm was designed, the jury found to put out orders and then pull back the orders, and the jury found that to be spoofing and, and the traitor, uh, got jail time Speaker 2 00:40:12 Wow. For Speaker 3 00:40:12 That. So that, that was an, an incident that really like, shook the industry. It was a wake up call for the industry. We have some clients who kind of put, would tell the story, um, and, you know, the idea that, um, you know, compliance professionals are not only protecting themselves, they're protecting the reputation of their firm, but they're also protecting their employees. Right. Um, and you want to have the systems in place, the culture in place where you can get ahead of the risk and, you know, potentially save someone from, from criminal liability. And it was a, it's a, you know, and their retelling is, it's a, it's a sad story. You know, the guy had a family and Speaker 2 00:41:00 Yeah. Speaker 3 00:41:00 Certainly an emotional time, um, for him. So that, that just, yeah. Speaker 2 00:41:06 To say the least Speaker 3 00:41:07 <laugh>. Yeah. It just, you know, it's, it just reinforces that it's an important issue and it is personal, and it is profound for the compliance officers who are involved and who have the responsibility to do something about it. Um, and this is something that we feel as a company, um, like we, our, our firm was built by former compliance officers, right? So people who've sat in the hot seat themselves and who can empathize and really understand, you know, what's at stake. And we are building the technology for that purpose. Speaker 2 00:41:45 That's great. That's great. So for anyone watching, if you are having risk management issues or want to improve your risk management, please reach out to Mike at advantis. Um, well, Mike, thank you for joining us. I really appreciate hearing your comments, uh, not only on iosco, but also on innovation and adoption. Um, really insightful. I really hope, um, policymakers hear your message, um, and, and change their tune on, uh, how they view crypto adoption in the us. Um, certainly. Yeah. Speaker 3 00:42:20 We, we covered a lot. Thanks for the great questions. Speaker 2 00:42:23 Well, thank you. Um, all right, well thank you everyone, and thank you for watching, uh, this episode of the Trump Policy Report.

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