In an era of rising anti-globalization; bitter trade wars between the US and its partners, China and Mexico; Europe in the throes of the rise of populism; and an impending Brexit - it is assuring to know that some of the world’s institutions are still global-minded and focused on how we can all work together to achieve economic progress.
Founded in 1961, the Organisation for Economic Co-operation and Development’s (OECD’s) mandate is to shape policies that stimulate economic prosperity and global trade. The OECD is a forum for countries committed to democracy and the market economy with convening powers that provide a platform to compare policy experiences, seek answers to common problems, identify good practices and coordinate domestic and international policy standards for its 36 members and up to another 150 countries.
Greg Medcraft is the Director for Financial and Enterprise Affairs at the OECD and is a champion for standard setting in the global community. As a former tier one European banker and securities specialist – in addition to former Australian Securities and Investments Commission (ASIC) Commissioner and International Organization of Securities Commissions (IOCSO) Chair – he has the technical knowledge and experience of the “engine room workings” of global markets regulation combined with the charm of a Saturday evening television compere and the soundbite narrative of a presidential candidate.
Last year, the OECD focused on the role of digital assets and blockchain technologies in transforming society. It convened global policymakers, regulators and industry blockchain and digital assets specialists in a number of forums over the year, culminating in the creation of the OECD Global Blockchain Policy Forum, which will convene again this year on September 12th and 13th in Paris.
I sat down with Greg to discuss his vision for the OECD’s Department for Financial and Enterprise Affairs, how the OECD is using its convening power to move the dial on global standards for blockchain, the importance of blockchain and digital assets, and, how the power of the people can help industry set higher standards for conduct.
Lawrence Wintermeyer: The OECD Financial and Enterprise Affairs team has been busy, what are some of the innovations and highpoints from the past year?
Greg Medcraft: On top of our business-as-usual work supporting fair and efficient markets, we’ve established three priorities:
1. Blockchain
We have seen a huge demand from the private sector for regulatory certainty on blockchain-based services, products and assets, especially in the financial sector. Governments are now regularly seeking guidance and opportunities to exchange experience and collaborate.
The OECD’s Global Blockchain Policy Forum was the high point of this work last year; it was the first global conference to look at the policy impact of blockchain across the full range of government priorities, including tax, finance, supply chains and government services.
2. Trust in Business
This is a unifying theme for our work on markets and responsible business conduct. We’re looking to give investors, consumers and businesses the tools they need to direct resources towards business activities that build trust and meet social expectations - essentially harnessing the power of the crowd.
3. Infrastructure Financing
The world needs to invest around $95 trillion in infrastructure over the next decade and we need to mobilize private finance to achieve this. Again, our work here focusses on providing information to the market to direct resources towards infrastructure projects that are viable and responsible over their life cycle.
Wintermeyer: The OECD has an extraordinary global convening power with governments, policy makers and regulators – you have really focused on extending this invitation to industry innovators and disruptors – how has this gone?
Medcraft: The OECD’s main audience is governments; this is whom we direct our advice to. But the private sector is at the core of the priorities I’ve mentioned.
Engaging with industry is critical because businesses are affected by the policy standards and advice that the OECD creates. Business is often a big part of the solution to our shared challenges.
Take blockchain as an example. With cryptocurrencies and token offerings, governments have scrambled to respond to a host of real and perceived market issues.
The OECD responded by bringing regulators from across the globe to the table alongside entrepreneurs, start-ups and engineers at the forefront of blockchain innovation in a series of roundtables last year and most recently with the Financial Stability Board (FSB) in February.
This has been enormously beneficial. It has allowed the global policy community to improve their understanding of the technology - its risks, and its benefits - while taking a more considered approach to blockchain innovation in finance.
Wintermeyer: You are a big fan of using the voice of the community to help develop emerging standards for regulation in global financial services, what does “the power of the crowd” mean?
Medcraft: The power of the crowd recognizes that a business’s community – its customers, investors, employees and other stakeholders – have growing expectations around good business conduct – what you could call the social license to operate.
At the same time, the crowd has been empowered by social media and the 24-hour news cycle to monitor business behavior and hold it to account.
I see this as a particularly important development for business conduct and long-term value creation. Businesses now need to deliver good environmental, social and governance outcomes if they are to properly manage reputational risk and secure success in the long-term.
The social license is also constantly shifting, which means companies need to be responding a lot faster than it takes regulators to make rules.
The social license doesn’t replace the need for good market governance, but it is a powerful driver of good conduct and risk management on top of a robust regulatory regime.
Wintermeyer: How important is the OECD’s focus on the non-G20 members and countries when it comes to blockchain and digital assets. Can the blockchain and new forms of digital assets accelerate economic development?
Medcraft: Some of our OECD standards include over 150 countries as signatories. We work with countries of all sizes and levels of economic development.
This has been important in our blockchain work for two reasons:
1. Blockchain offers great potential for economic development. We’ve seen this in use-cases that support financial inclusion, like remittance services, and that support property rights like land titling, a pre-condition for economic development.
These are early days and the technology is not yet at scale, but we are seeing how smaller jurisdictions like Mauritius or Jamaica – as well as jurisdictions like France who has passed ground breaking legislation on digital assets - are especially willing to innovate
2. Digital assets are global by nature, which means they can flow freely between jurisdictions.
As with our tax transparency work, we need countries of all sizes to work together if we are to build a global market which participants can trust and avoid opportunities for regulatory arbitrage.
Wintermeyer: How do you see the developments in blockchain and digital assets disrupting the mature financial services markets and top tier global banks? How does China figure in these developments?
Medcraft: Clearly banks are looking closely at how blockchain and digital assets can streamline activities and created efficiency and transparency in inter-bank operations, as we’ve seen with the Corda project, the Utility Settlement Coin and JPM Coin.
It’s likely that such large private networks, with assets that are backed by real-world assets, are the future of blockchain’s use in finance.
While not as open and inclusive as bitcoin, it is still a quantum leap in efficiency and transparency in banking and will probably path the way for even more disruptive innovation like central bank digital currencies.
Developments in China really show where blockchain is headed. We’re seeing new fintech offerings marrying blockchain’s security and transparency with internet-enabled sensors and AI to develop a new generation of financial products, for example, automated livestock insurance.
Wintermeyer: The OECD has always worked closely with the International Monetary Fund (IMF) and the World Bank – what does this partnership seek to achieve?
Medcraft: International organizations like the IMF, World Bank and OECD have strong links because our work is complementary and each of us plays to our comparative advantages.
We’ve all been looking at fintech and blockchain from different angles:
- The IMF’s deep expertise in the global financial system has given it an excellent view of how fintech and blockchain could shape international financial flows and central bank priorities.
- The World Bank’s has leveraged its operational financial functions to develop our collective understanding of digital assets, as we saw from the blockchain-based bond issuance and ‘learning coin’ project developed with the IMF.
- At the OECD, we look at how we can help ensure fair and orderly financial markets – which means supporting things like good financial consumer protection and financial literacy in the digital age.
But actually, our true comparative advantage is the wide range of policy areas we cover, from finance to tax, health and agriculture, anti-corruption, public governance, etc.
When it comes to looking at blockchain’s impact between sectors and across the whole economy, the OECD is where the dots get connected.
Wintermeyer: You have dedicated your career to the development of standards, policies and regulations in both developed and developing economies. What is the single biggest lesson you have learned?
Medcraft: Things move quickly in business and more quickly than regulation and laws in this fast-paced digital era. In the past, industry often looked at implementing the minimum standards when they should have been looking at implementing good standards above the minimum, especially cognizant of what the community expects.
With the power of the crowd, industry now has the tools to set high conduct standards in line with community expectations for customers, investors, employees, other stakeholders, and the environment – industry should also harness this opportunity to engage and work with global policy makers and regulators.
