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Edelman Smithfield


The Dawn of a New Financial Age

November 11, 2022

The concept of virtual assets - still a relatively new phenomena - has significant relevance to the way in which the digital economy is evolving. They are fundamental to the commercial viability of the metaverse, and diverse in nature: monetary virtual assets like cryptocurrencies or non-monetary, like non-fungible-tokens (NFTs), or in-game purchases. Underpinned by distributed ledger technology (blockchain), digital assets can make payments easier, faster, and cheaper – and they create an audit trail that documents the asset journey. But that is only half the story.

Across many jurisdictions there is a regulatory deficit that manifests in loopholes and (because of their anonymity) scope for money laundering and the financing of terrorism. For those looking to escape authorities’ scrutiny, virtual assets are therefore highly attractive. They can also be highly volatile.

Abu Dhabi Global Market (ADGM), a leading international financial centre located in the capital emirate of the United Arab Emirates, announced the world’s first comprehensive, robust, and bespoke virtual asset regulatory framework. Prior to that there was no regulatory oversight placed on virtual asset players, custodians, or exchanges. Instead, a ‘light-touch’, simple ‘honour system’ was followed, allowing virtual asset players to choose whether or not to comply with industry standards.

Speaking of new age finance, it is necessary to take a step back and acknowledge that fintech is not here to wipe out traditional finance. The competition between them was eliminated with a future-first collaborative approach to meet the growing demands of digital finance. Whether it was simplifying complex processes, improving user experience or providing digital solutions for B2B and B2C clients, financial institutions, regulators, strategists and policymakers had foreseen the future of finance and identified sandboxes as a launchpad into this new era.

It was very soon realised that the increasing sophistication of fintech solutions is leading to increasing levels of risks. A new financial product or service introduced with the existing banking or financial standards seemed to create unclear scenarios for some financial institutions which made them too cautious, resulting in a hindrance to innovation. Dozens of pilot programs were ongoing with multiple organisations that wanted to jump on the bandwagon of digital innovation. It was only a matter of time before a regulatory body took action to overcome these challenges.

As we progress and experience the nuances of the cutting-edge financial industry, the grains of sand from the fintech sandbox will continue to build blocks of the digital revolution on which the financial industry continues to stand. Fintech Digital Lab supports and enables the creation of APIs, system virtual machines, data and applications that connect legacy systems of financial institutions to fintechs, established technology providers and other relevant parties in a cost-effective and scalable manner, hosted securely on the cloud.

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