Transcription:
Transcripts are generated using a combination of vocal recognition software and human transcribers and may contain errors. Please check the corresponding audio for authority registration.
Chana Schoenberger (00:00):
Hi, I’m Chana Schoenberger. I am the editor -in -chief of the American Banker, and I with me here Margaret Butler, who is the head of the practice of financial services of the law firm, Bakerhostler. To welcome.
Margaret Butler (00:12):
Thank you very much, Chana. I am so excited to be here for Digital Banking 2025.
Chana Schoenberger (00:17):
So tell me what you are doing in defi right now. What’s going on?
Margaret Butler (00:22):
So I look with a breath because the regulators are in a wave of activities, and I am delighted with the things they have presented so far in order to implement the executive decree of January. And I am also excited for what I think I have happened before the end of this year. The most exciting thing I saw just happening last Thursday. The SEC has published a declaration that the features of activities on the proofs of participation is not titles and, therefore, they do not require the SEC recording. It’s huge. Previously, the SEC had legislated by the application and they had taken a very broad definition of what security is. It is now a use case that is clear and defined and will open a lot of activity
Chana Schoenberger (01:23):
It’s huge. So what could that mean for banks and payment companies?
Margaret Butler (01:29):
I therefore think that banks and payment companies had hesitated to adopt blockchain -based technologies due to regulatory uncertainty. But technologies are excellent. Technologies are fast. They offer increased transparency. They are simply very effective. So, if the banks feel more comfortable that it is legal to engage in these activities and there is a clear roadmap, I expect to see a much wider adoption of fintech this year.
Chana Schoenberger (02:06):
It will be huge. What does this mean for things like stablecoins?
Margaret Butler (02:11):
So I think that stable pieces are something that is addressed. I do not think that this special advertisement goes directly to stable parts. However, I see a lot of interest in stable parts. I see the activity of mergers and acquisitions with regard to stable coins, because I think that stable parts are just the most logical bridge between DEFI and traditional finance. They are really a ramp and a ramp out of ramp, and they create the opportunity for these two financial systems to interact.
Chana Schoenberger (02:46):
It’s going to be so interesting to see what’s going on.
Margaret Butler (02:49):
I am incredibly excited. Another regulatory development in the past six weeks is the office of the currency controller issued directives which essentially allow a bank to hold cryptographic assets, which is another area that we were waiting for. This will particularly have an impact on investment funds, and once we have an additional clarity around this, we can also expect more investment activity in these assets. Again, I think we will finally reject DEFI and traditional finance with these additional regulatory advice.
Chana Schoenberger (03:33):
So, will this 2025 be the year when the crypto spends a brother to a real banking?
Margaret Butler (03:40):
I mean yes, but I think it’s both, no. So I think we see the maturation of the DEFI industry. We note an activity of mergers and acquisitions within the industry, which, I think, will be useful because at the moment, there were stacks of ad hoc technologies which underlie a large part of the applications, and which presents the risk for the system. I therefore think that we see a certain maturity, a mergers and acquisition activity, which will help undo a more robust product. And we also see a lot of interest in stable parts and much more advice and positivity of regulators, which, I think, will certainly allow banks to feel comfortable using blockchain technologies.
Chana Schoenberger (04:37):
So, one thing that I heard of banks is that, and it was not with regard to DEFI, that was in fact with regard to KYC and other types of banking regulations, supervision problems, it is that they are a little afraid to change their procedures because even if the regulators agree now, there is no say that the four -year regulators will say, and they could look back and you have to go back and to say, Your Kyc Guardrails. I know that the government has told you, but we are the government now, and it’s not good.
Margaret Butler (05:04):
So I think that is a fair point, and obviously, the financial services industry being so highly regulated must be very cautious. However, I think technology is somehow inexorable, and it is not only blockchain technology that will be relevant to AMLKYC, it is also the technology of artificial intelligence. There are already AI applications that can dramatically reduce the costs of an ML and KYC, and it is only efficiency that banks will have to adopt, right? Because as soon as they cannot afford not to online, they cannot afford not to do it.
Chana Schoenberger (05:43):
Yeah. This is another thing that really interests me is the intersection between Defi and AI. I think it’s a bit like the world was completely supported by software.
Margaret Butler (05:56):
So you always raise a very interesting point that gives to think. I mean, I think the idea of the world is a bit frightening, right? It’s a bit scary, but I think that in addition to being a little scary, I think, and I am not a technologist, I am a lawyer, but I think these technologies go together. I think the blockchain’s ability to be used to trace and authenticate really compliments the ability to generate and solve problems faster. I also think that venture capital investment will lead a large part of this innovation, and just as the blockchain has had its moment, I think that AI has also had its moment. And I think that people are really interested in the way these technologies work together. I can see a layer of agentic AI above blockchain technologies really helping to solve a large part of the problems of centralization and governance if we can fully automate the process.
Chana Schoenberger (07:07):
If it works.
Margaret Butler (07:07):
If it works.
Chana Schoenberger (07:08):
Yes. It seems really interesting. I mean, it’s a bit like the irrational exuberance phase is almost finished, and now we are in the phase where we are thinking about how we can really use technologies within financial institutions so as not to explode the place or have monkeys caricatures, but just things that really improve banks.
Margaret Butler (07:29):
Absolutely. Yes. I am very excited for these applications. But you, again, have raised a very important point, which is that people want to create technologies that work well. When they acquire, they want to acquire technologies that work well, and there are risks as well as the financial services industry had to face the risks traditionally with these technologies.
Chana Schoenberger (07:56):
Of course.
Margaret Butler (07:57):
The main risk, I think, is technological, right? You want to make sure that technology is working well. You want to make sure that it is not vulnerable to hacking. This remains a huge problem, even if Defi is supposed to be resilient for this, but it is not the only area. The confidentiality of the data will be very important. What is interesting about finance and deffi is in a way the vast set of regulations with which these products must comply.
(08:28):
So we are talking about the secrecy of the federal bank, right? We are talking in a way of Surral concerns that people have about money laundering. And then we are just talking about the field, such as consumer protection laws,
Chana Schoenberger (08:44):
Which are different in each jurisdiction. And especially now in the United States, there will be, it seems that there will be fewer laws on consumer protection at the federal level, but some states are still very serious about them. New York, for example, they have intensified and they seem to want to play a more national role,
Margaret Butler (09:00):
That’s right. And so I haven’t seen it in the blockchain space yet, but absolutely in other areas. We already see that states are trying to improve their regulatory game to respond to what they consider changes at the federal level. And that makes things more difficult for many respects, because it is easier to comply with a set of regulations than 50. I think we will get a clear roadmap for federal regulators, at least dry, hopefully by the end of 2025. And if we can get a few years of traction before any other potential change in regulations, I think that will give the industry a long length.
Chana Schoenberger (09:46):
Great. Well, thank you very much for joining me here. I really appreciate having you.
Margaret Butler (09:50):
Thank you very much, Chana. It was fun and enjoying the conference. I am very excited for that. THANKS.
