•We see Africa as a promising market for digital payments and digital assets due to its young population.
•It also has a high mobile phone adoption and relatively limited baggage in terms of financial legacy infrastructure such as banking and payment systems and regulations.
Global financial markets infrastructure technology company,Securrency, recently conducted several intensive education sessions with regulators in Kenya to inform them of the benefits of digital assets and automated enforcement of multi-jurisdictional regulatory policy.
The Star's Martin Mwita spoke to the company's Strategy Director Manuel Rensink on the firm's undertakings and the potential for digital assets innovation in Kenya.
In a nutshell tell us about Securrency?
We are a US and UAE based technology company founded in 2015 by the first Chief Digital Innovation Officer of the US intelligence community. We focus on compliance and policy enforcement, and interoperability of legacy systems and new technologies such as blockchain and smart contracts. For example, with our technology as a US asset manager, we can tokenize an investment fund to enable direct distribution to the mobile phone of an investor and allow investor to exchange these tokens - that can represent currency, gold, equities, bonds – directly with another user anywhere in the world.
The company is headquartered in the US and has a strong presence in the UAE, why did you decide to enter the Kenyan market?
Through our work with the World Bank we were put in touch with FSD Kenya, who in turn put us in touch with the Capital Markets Authorities (CMA Kenya). In general, we see Africa as a promising market for digital payments and digital assets due to its young population, high mobile phone adoption and relatively limited baggage in terms of financial legacy infrastructure such as banking and payment systems and regulations. That is why we have chosen Kenya.
Do you foresee regulators internationally collaborate to advance digital assets outside and what is your role?
Yes absolutely. In our experience, regulators don’t like to work in a vacuum and are always open to participate in inter-agency and international fora to modernise current financial infrastructure. Part of a regulator’s mandate is to be on top of the latest technologies and to allow innovators to experiment within certain constraints, while protecting the public interest from issues such as technology risk, fraud and money laundering. Securrency is currently engaged in several multi-jurisdictional projects with regulators on four continents. These projects involve the issuance of digital securities, purchases with currency-backed stablecoins, as well as trading on secondary marketplaces. Securrency’s technology actually makes it easier for regulators to collaborate and audit compliance in multi-jurisdictional contexts.
Do you see a real demand for digital assets in Kenya?
As digital assets, and the digitalisation of traditional assets, there are several opportunities and benefits that can benefit citizens anywhere; greater access to financial services as all that is required is a smartphone with internet. Granted, not everyone has it yet, but many more have this than they do a bank account. By leveraging the internet, rather than thousands of back-office banking systems, faster and cheaper transactions, and new ways of raising money for businesses,when done right, it can do more for the local economy. So yes, opportunities are huge.
How would you describe the country's regulatory environment?
The CMA(Capital Markets Authority) is a knowledgeable and engaging regulator in which fintechs will have a partner, rather than an adversary.
What are the main challenges to digital asset adoption in Kenya, and do these differ from Australia, the US or countries in Europe?
Trust is the main challenge to digital asset adoption anywhere, from Nairobi to New York. Regulatory uncertainty, technological risk, and nascent standards and best practices have to have to be addressed for everyone especially regulators and policymakers – to adopt digital assets in their societies. The term “digital assets” is really a catch-all term and often you’ll see a project compared to Bitcoin, which is unregulated and pseudonymous. Pseudonymous meaning that it’s nearly anonymous, except in many cases where law enforcement – using specialised analytics - has made the connection between an online wallet address and an individual. You don’t want total anonymity because it invites criminal behavior, but you do want privacy. Securrency and others are working on technologies to capture the benefits of blockchain and digital assets, while allowing for regulatory controls, and in fact, even improving transparency and auditability compared to the current banking systems.The challenges are global: the bridging between the banking sector and fintech, between centralised and decentralised finance and allowing for innovation while protecting investors.
What was the format of the sessions Securrency conducted with the CMA and what was the biggest learning from this process?
As has become the new normal in these times of Covid, all sessions were delivered online. We had speakers from Securrency, as well as a number of guest-speakers, including regulators from the US and the UAE, and a US investment manager and issuer of regulated digital assets. The aim was to address all the major topics in digital assets, such as token taxonomy, issuance models, blockchain types, smart contracts, risks, and future trends. We rounded off the sessions by looking at particular use cases brought to us by CMA. I think the biggest learning was that there are very good reasons to adopt digital assets and be at the forefront of innovation, rather than a late follower. There are risks but they can be managed, mostly without the need of changing existing legislation or current capital markets rule books. The early bird gets the worm and innovative technology companies will establish themselves - and create high-quality jobs – in jurisdictions that are open yet sophisticated and nuanced in their approach.
Is Securrency engaging with other financial markets regulators around the world?
We continue to work with regulatory authorities around the world and multi-lateral institutions on a wide range of pilot projects covering several pressing issues related to transparency and compliance. For instance, Securrency recently conducted a pilot with a multi-lateral organization on the benefits of blockchain technology to trace loan payments tied to vaccine distribution. In this particular instance, Securrency provided a solution for uniform traceability of loan disbursements from a multi-lateral institution across non-uniform deployment environments.
A recent study indicated the urgency for Kenya to implement a legislative framework for digital asset , what is your take?
Without specifically commenting on the study or its recommendations, what I can say is that as regulators continue to look to the digital assets space and develop ways to approach this space it’s important for both industry and regulators to keep in mind the importance of finding the right balance between innovation and regulation. Innovation and regulation are not mutually exclusive and to develop a vibrant ecosystem that can support the movement of value across various infrastructure rails (new and old) in a compliant manner, the two must coexist. While the relationship between innovation and regulation can be tenuous at times, it is vitally important for regulators and industry to engage from the outset to provide for a marketplace that respects regulatory authorities, while providing clear parameters within which industry is able to innovate to the benefit of the end-user and Kenya’s economy, more generally.
How can digital assets contribute to the African Union’s single african digital market initiative, which seeks to leverage technology to stimulate digitized Pan-African economic integration?
Buy-in from multiple regulatory jurisdictions is crucial not only to ironing out differences in how each jurisdiction views and regulates digital assets, but to provide for a continent-wide market that reduces barriers to access and movement of value. Cross-border impediments to the flow of value can have significant societal costs. What’s important in the development of any framework or single market is that it provides for optionality and choice and does not restrict industry to have to use any one particular architecture, nor is that system controlled by any one entity which could present significant challenges to privacy and monetary policy moving forward.
How does the public ensure they are safe in the digital financial space?
The general public has to be very aware that this is a nascent space with technology risk, regulatory risks (non-compliance) and often a lack of best practices and standards. Make sure to deal with entities that are regulated by the CMA or in the CMA sandbox. Do your own research. When dealing with unregulated cryptoassets, buyer beware, limit your exposure and only invest sums that are not life-changing when lost. For those with the time and curious about the future of finance, invest to learn and slowly build up your exposure to digital assets.
Where do you see Kenya's fintech market in the next five years?
Others will be better positioned to comment. Generally, we see a global movement towards more decentralized finance, allowing for greater access, reduced costs and even greater compliance and auditability.