A central banker from Germany believes that innovations in financial technology require an international standard-setter in the same way as banks. Meanwhile, he dismissed the concept of decentralized finance (DeFi) and stated that it played the role of a ‘casinos’ for those who like to speculate. According to Joachim Wuermeling, it is time to discuss a strategy for dealing with rapidly growing sector of finance based on the blockchain, which is aimed at rendering the banks redundant. This move came after the Financial Stability Board (FSB), an international organization, was asked to come up with rules for governing the crypto sector.
Moreover, there is also an ongoing debate about how to regulate those financial services correctly that are not under the control of a single entity. On Thursday, Wuermeling game a speech in which he said that he considers decentralized finance to be nothing more than a casino for speculators who are tech savvy. He is a member of the Deutsche Bundesbank’s Executive Board and oversees IT and bank supervision. He said that DeFi was experiencing a significant amount of growth in a short span of time and it would continue to do so.
Therefore, he added that it was time to have a discussion on regulatory options, although the technology still has a number of hurdles to overcome before it can possibly become mainstream. He said that a global forum is required, which would have the responsibility of setting some rules for digital innovation to be followed globally. He stated that he envisioned something like the Basel Committee on Banking Supervision (BCBS), only it would be for digital financial innovation. This is an international organization that is responsible for developing capital rules for JPMorgan and Chase, Deutsche Bank and other traditional lenders.
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According to Wuermeling, there are no borders in digitalization, which means there needs to be coordination between borders for developing regulation. The FSB has been called upon by a number of nations to develop rules for the crypto sector, so it can also be treated in the same way as regular finance. An FSB spokesperson talked about the matter and disclosed that they do not have a timeline for accomplishing this goal. However, it should be noted that a report on stablecoins is expected to be published by the FSB this year in October. The problem is that the rules are aimed at regulating centralized institutions and facilities, such as hedge funds and banks.
Therefore, it cannot be ascertained as to how they would apply to decentralized finance (DeFi). A study was conducted recently for the Blockchain Observatory of the European Union, which stated that the approach of regulators should be adjusted. Rather than focusing on regulating institutions, regulators should focus on activities like investment and lending. The Bank of International Settlements (BIS) also published a report on Wednesday, which talked about an approach known as embedded supervision for DeFi. This would provide regulators with a peek inside the DeFicode, but could give rise to privacy concerns.