At Davos, Dutch Central Bank Chief Takes Aim at Jurisdictions That Attract Bad Crypto Actors

Klaas Knot called the appealing localities with lax restrictions "sunny places for shady people." He was part of the only mainstage panel focused explicitly on crypto at this year’s World Economic Forum.

AccessTimeIconJan 19, 2023 at 8:48 p.m. UTC
Updated Jan 23, 2023 at 9:52 a.m. UTC
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DAVOS, Switzerland — Two European regulators, an Arab lawmaker and a lone crypto CEO sat down with a journalist in a snowy ski town on Thursday – and pretty quickly, the room was sweltering.

The four made up the only mainstage panel focused explicitly on crypto at this year’s World Economic Forum (which was notably less prominent than at last year’s programming, pre-FTX collapse). Although the speakers agreed on the need to supervise the space on a global scale, they didn’t hold back when addressing the recent market mayhem and company collapses that have sent both the industry and regulators on a desperate mission to rebrand and regroup.

The panel kicked off with Omar bin Sultan Al Olama, the United Arab Emirates' minister of state for artificial intelligence and the digital economy, saying his jurisdiction’s innovation-friendly regulatory approach was far from a “light touch” and ensured no crypto companies – including Ripple, whose CEO Brad Garlinghouse sat next to him – currently have licenses from the UAE's watchdog agency, the Virtual Asset Regulation Authority (VARA).

The minister faced tough questions from Stacy-Marie Ishmael, Bloomberg’s managing editor for crypto, on why Dubai tends to come up as the favored destination for disgraced crypto founders seeking refuge or resurrection.

Bad actors seek out jurisdictions such as Singapore, London or Dubai because "people give" these places a "certain amount of credibility," Minister Al Olama said.

Addressing reports that collapsed crypto enterprise Terra’s founder Do Kwon had come to Dubai as authorities in South Korea launched a global search to locate him, Minister Al Olama claimed he hadn’t.

“I actually read an article that he was in Dubai, and I went out and looked for him. The guy wasn’t there,” the minister quipped.

Klaas Knot, president of the Dutch central bank and head of the Financial Stability Board, an international group, took aim at jurisdictions that attract crypto types for having lax oversight – a subject that has come to the forefront as the abrupt collapse of Sam Bankman-Fried’s Bahamas-based FTX revealed poor management and misappropriation of company funds.

“Many of these crypto assets are offered from places that I would call sunny places for shady people,” Knot said.

Minister Al Olama later countered the regulator’s point, claiming that bad actors don’t have a “nationality” or “destination.”

“You will see them everywhere. You will see them in the Bahamas, you will see them in New York, London, and what we need to do as governments is to work together, with the industry as well, to ensure that if someone does something wrong he can't move from one place to the other,” he said.

While he expressed skepticism about crypto assets themselves, Knot played to the blockchain-not-crypto theme of the week at Davos, praising the blockchain technology that powers crypto transactions and ledgers – something with which the Netherlands has experimented.

“One of the things is that the benefits of this technology are beyond doubt. I mean, nobody is questioning the use of the technology,” Knot said.

Knot’s statement was a sharp turn from the Dutch central bank’s previous stance that blockchain is inefficient. On Thursday’s panel, however, Knot said regulators have been “so busy” on the “risk mitigation” aspect of crypto and therefore have paid less attention to harnessing the benefits of the technology.

As the lone crypto representative on the panel, Garlinghouse did his best to defend the industry’s integrity after the multitrillion-dollar market wipeout of last year. “As time goes by, I think we'll spend less time talking about Mt. Gox and Silk Road and more time talking about the real enterprise-scaled use cases where it's not an experiment,” Garlinghouse said.

Global rules

Both Garlinghouse and Mairead McGuinness, the European commissioner for financial services, financial stability and capital markets union, emphasized the need for regulators to focus more on consumer protection measures as thousands of global retail investors took the hardest hit from the crypto collapses of 2022.

“Lots of people have suffered for what has happened now. So the consequences may not be immediate for financial stability, for individual stability, for both financial and mental health, this can be very dangerous,” said McGuinness, who spearheaded the European Union’s landmark Markets and Cryptop Assets (MiCA) regulation that’s now in its final stages of approval.

Previous discussions around crypto and blockchain regulations outside the main congress hall this week also homed in on a need for regulators to pay more attention to consumer protection measures instead of threats to financial stability in the aftermath of FTX and similar meltdowns.

The bedrock of crypto regulation needs to be global, McGuinness said, a point she reiterated in an interview with CoinDesk following the panel.

Speaking of Sam Bankman-Fried, Minister Al Olama said, “if someone else comes in and does the exact same thing in another jurisdiction, we will all have failed as governments. This is a lesson that we need to take today and make sure it doesn't get repeated tomorrow.”

But on regulating crypto, decentralized finance and even non-fungible tokens, even the European Union, with its comprehensive MiCA package, is lagging behind.

“Unfortunately, we can't wait for the next catastrophe. And we're already too late,” Minister Al Olama said.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.

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