BaFin President Hufeld: Regulation in the “tension relationship between innovation and safety

HOME TECH SAFETY BAFIN PRESIDENT HUFELD: REGULATION IN THE “EXCITING RELATIONSHIP BETWEEN INNOVATION AND SAFETY

Felix Hufeld, President of the German regulatory authority BaFin, last week made a speech on crypto currencies and the blockchain. He also discussed the role of his authority in the regulation of technology and applications. Innovation must be promoted, but financial market stability must also be maintained.

On Thursday, 7 June, the President of the Federal Financial Supervisory Authority (BaFin) gave a speech in Berlin with the title topic “Bitcoin, Blockchain: What is hype and what remains? As the title suggests, it was on the one hand about the challenges crypto currencies present from the point of view of the financial market regulator. On the other hand, Hufeld also addressed the possibilities that the technology offers in his opinion.

Hype or future cryptosoft technology?

“At this point I cannot and will not conclusively answer the question of what is only hype about Bitcoin and cryptosoft Blockchain and if it is a scam and what actually has the substance to disruptively change the financial markets. However, as a financial supervisor, I can offer you some assessments and observations.”

This is how Felix Hufeld introduces his remarks on the blockchain. As the best-known application of the blockchain, he highlights the Bitcoin as representative of all crypto currencies. He still does not regard it as a currency, since in our jurisdiction the term currency is classically reserved for central bank money. Although Bitcoin was once created as an alternative currency, it should be regarded more as a unit of account.

BaFin must act in a regulatory capacity
He sees BaFin in the role of the regulator, which sets the necessary framework for blockchain and crypto currencies to develop securely. However, in order not to overshoot the mark and over-regulate, the first step is to learn more about the technology. “Innovations need space, especially at the beginning, in order to develop. A market economy is characterised by giving them this space,” says Hufeld, pointing out his guidelines. Out of fear of risks, opportunities must not be allowed to fade into the background.

BaFin also wants to protect the interests of consumers and investors. Therefore, Initial Coin Offerings are the main focus of the authority. The financing method ICO is so far still extremely unregulated, uncertain and highly speculative. However, the maxim of action is not to protect individual investors, but to ensure financial stability and prevent systematic damage to consumers.

The blockchain can be used in a variety of ways

Hufeld describes the temporary price gains of the crypto currencies as a hype, he sees the blockchain as somewhat more stable. He mentions Estonia and Sweden as examples where the blockchain is already used in public administration. There, the technology is particularly suitable in countries with a lower level of development, where structures are still in the process of being set up. He describes the blockchain for “some African countries” as a “real quantum leap”, for example in the documentation of property rights.

But the blockchain can also contribute to securing growth and prosperity in industrialized nations. The financial sector in particular, as an obvious field of application, is of particular interest here. Small and medium-sized enterprises can benefit from free cross-border payment transactions without intermediaries. He also mentions borrower’s note loans and insurance as fields of application for block-chain applications such as Smart Contracts. However, he also warns against looking for a solution for all problems in the block chain. One has to ask oneself exactly who can benefit from the technology.

As clarified at the beginning of the speech, Hufeld cannot say exactly where the promise of the blockchain ends and the irrational hype begins. However, he shows a clear will on the part of BaFin. It wants to promote technology where it can be used profitably. For the serious part of the cryptoscene this is good news.