New Zealand should adopt a more proactive approach to the relationship between digital regulation and innovation, according to a report co-authored by blockchain expert Alex Sims.
The government must encourage and facilitate the use of cryptocurrencies, digital assets and blockchain to enable Aotearoa to flourish and prosper in the digital age, says Associate Professor Alex Sims.
Dr Sims is one of two independent specialist advisers whose recommendations are included in the Finance and Expenditure Select Committee’s report (released on 17 August) exploring the current and future nature, impact, and risks of cryptocurrencies.
The Committee endorsed the independent advisers’ report, which contains 22 recommendations that, when taken together, would see New Zealand adopt a more proactive approach to the relationship between regulation and innovation.
Sims and fellow independent adviser Jeremy Muir, a partner at MinterEllisonRuddWatts, say that cryptocurrencies (and other digital assets) and the technology they use, blockchain technology, offer opportunities and challenges for New Zealand.
Challenges, says Sims, include the volatile price of some cryptocurrencies. Other challenges posed by cryptocurrencies, such as use by criminals to launder money, fund terrorism or carry out scams, are not unique to cryptocurrencies and occur frequently within the traditional banking system.
Despite the challenges, restricting the use of digital assets (including cryptocurrencies) and other uses of blockchain technology in Aotearoa would not automatically protect New Zealanders from harm and doing so would limit the country’s growth and development in the digital economy, says Sims, who, together with Muir recommends that the government adopt policy settings to encourage developments in digital assets and blockchain in New Zealand.
Their report advises facilitating reputable and trustworthy by businesses of digital assets and blockchain more generally through various measures. They say this can reduce harm, increase employment in high-paying tech jobs and increase New Zealand’s tax revenue.
This kind of action must, says Sims, be balanced by enhancing regulation to deal with scams and other consumer protection issues and by educating the public about digital assets.
Other recommendations in their report include:
- Education about the benefits, best practices and risks of digital assets is necessary. This includes secondary and tertiary educational institutionsconsidering developing courses in relation to digital assets, blockchain and the broader Web context as part of a wider focus on technology and its place in New Zealand’s future.
- That the government ensure that regulators (in particular, the Financial Markets Authority and the Commerce Commission) are well-resourced to deal with bad actors in the digital asset space and ensure consumers have confidence interacting with digital assets, whether for investment, business, or enjoyment.
- That the digital assets industry in New Zealand, in consultation with regulators, develops a best practice code or guidance with minimum standards for the custody of digital assets.
- That the government direct the FMA (as lead agency) to establish a formal sandbox to allow organisations to test innovations concerning digital assets and services. A formal sandbox signals that New Zealand is keen to facilitate the growth of this industry and would assist regulators’ knowledge of the technology, developments and ventures in this area.
- That the government direct the creation of a cross-agency working group (Digital Assets Cross-Agency Working Group) to lead the government’s work with industry in the development of policy for digital assets in New Zealand. And that this working group hold “blockchain-sprint” equivalent or similar events to develop new ideas and strategies for industry growth.
The Government is due to respond to the Committee’s report on 10 November 2023.
