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What does the future hold for regulation and fintech?

Local money compliance expert Carol van Cleef shares her predictions.

Regulations are coming to fintech. But what does that mean? (Photo by Flickr user John Eisenschenk, used under a Creative Commons license)

Carol van Cleef

Carol van Cleef. (Courtesy photo)


When it comes to the future of tech, you often hear about the race to innovate “the next big thing.” What you don’t hear about is the other side of the future: regulation.
We asked regulatory expert and white collar crime attorney Carol van Cleef to share her personal views on the kinds of regulations brewing for #dctech’s hottest fintech developments.
The first thing we wanted to know was how long she thought ransomware hackers would be able to hide behind bitcoin.
“Ransomware has been around for a while,” van Cleef told us. “It depends on what the flavor du jour is how you make the payments. [Before bitcoin] it was pre-paid cards, or getting a money-gram order or sending a wire via Western Union.”
Van Cleef pointed out at a Blockchain conference last month that it’s always been a race for regulatory agencies to catch up with the latest form of payments. Now she says they may be closing in on bitcoin.
“There are several companies developing techniques for tracing bitcoin transactions,” she explained. “They can track the movement. Assuming that the transaction is all posted on the Blockchain they can see the movement from one wallet to another wallet to another.”
One such company is New York-based Chainalysis. And the work done by Chainalayis and companies like them could mean a crackdown on bitcoin providers as well as ransomware hackers.
Last year, at an American Bar Association program, van Cleef heard representatives from the FBI and the U.S. Attorney General’s Office discuss the issue. According to her, the representatives were of, “the assumption that anyone selling bitcoin for randsomware were involved in ransomware.”
But that might not be an unexpected outcome considering the illegality of ransomware. So what about the gray legal zone that is using Ethereum to create smart contracts for online betting?
“Whether it’s done through smart contracts or through funds move and value transfers and I don’t think [online betting is] any particular surprise to anyone,” van Cleef said wryly over the phone. (She cited a report from Coindesk via Arstechnica that found that up to half of all bitcoin transactions are for gambling.)
Targeting betting smart contracts would depend on whether cryptocurrencies are determined to fall under the Unlawful Internet Gambling Enforcement Act. According to van Cleef, “When you read the language of the regulation carefully it’s not clear that it would regulate in this area.”
Additionally, she said there are other state and federal statutes that have been used to hold companies liable for forwarding money for gambling purposes. Paypal, for instance, forked over $10 million in 2003 after being held liable for their involvement in online gambling.
Van Cleef emphasized that smart contracts are still in a nascent stage. “We’re dealing with an area that is pretty darn new.”
Speaking of new, we wanted to know van Cleef’s thoughts about the newfangled idea to replace human financial advisers with AI advisers.
Van Cleef told us that programming human intuition will be the hard part about replacing human financial advisers but that, “this is an application that can work, and over time will probably yield results that will be consistent with human decision making.”
As for regulations, she was unsure as to what the future might have in store for AI advisers.
“We have a system of laws [for] investor protection, investor closure,” van Cleef said. For her, the question of how to regulate AI advisers would be about asking, “can the investor be appropriately protected?”
But in general, she told us, she believes robo-advisers were, “absolutely inevitable.” Why? Millennials, of course.
“The younger people are less restrained by the past,” she said.

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