Interview by Matthew Dove
When it comes to encouraging fintech innovation on the Isle of Man, Lyle Wraxall wants to make one thing clear. It’s not what the island can do for you but what you can do for the island. Here, TFT’s Matthew Dove talks regulation, incubation and hashes out the blockchain with the Digital Isle of Man CEO…
TFT: What is the Isle of Man Blockchain office and what purpose does it serve?
LW: So, I’ve been doing my current job for about a year and my primary responsibility is driving the digital economy of the island. Coming to the island, one of the first things I looked at … was trying to understand what can we deliver that’s of economic value to the island but which would allow the other sectors and businesses to grow as well.
Blockchain was one of those concepts.
I’d done a bit of work with blockchain before I came to the Isle of Man, both in New York and in London, I also did a bit of work at the IMF around it. I was head of financial services in New York for my consultancy and in London we created a bit of a blockchain think-tank to try and understand how you could approach this from a management consultant’s side. There was already quite a bit of blockchain on the island, there’s actually quite a lot of innovation on the island in general. Being new to it, that was quite a pleasant surprise…
I started by trying to understand why [the startups] were there and what they were trying to get out of the island. I did a few trips around these sorts of conferences to better understand what other people wanted. A lot of it centred on, “where can I be regulated and how can I be confident that my business isn’t going to be derailed by a poor bit of regulation down the line?”
Then I looked at what we already had, and we already had a fair bit of regulation for this space. The GSE (Gambling Supervision Commission), the FSA (Financial Services Authority) and our information commissioner were all pretty well clued up regards blockchain. So, it was like, we’ve already got ideas and we know what we’re doing in this space now all we need to do is create a standard.
We didn’t have a blockchain sandbox, so we’ve created that.
Everybody’s got to have a sandbox, it’s part of the fabric of what you need. I spoke to the regulators about why some of the regulation was taking longer and the challenge they had was trying to understand a technology which is pretty cutting-edge.
They were also working with people who hadn’t been regulated before so didn’t speak the regulatory language. So, what I thought we could do is sit in the middle of those two. That’s really where the blockchain office came from. In the office we have a regulatory lead, somebody who’s a technology lead, a team beneath both of those and some processes which we need to have in place. Also within the office, we’ve got the likes of KPMG and PwC, we’ve got a blockchain consultancy. Whilst I’ll be running the office for a while, I intend it to go off and let it be its own thing.
So, what do we hope to get out of it as an island?
Well, we’ve got a really good reputation in financial services and in e-gaming so we needed to make sure that we weren’t going to invite businesses in that were going to damage that reputation. I created an application process and a panel which first and foremost really looks at businesses, understands what they’re trying to achieve and make sure there’s not going to be any reputation risk to the island.
From there we’ll look at what kind of business they’re in and whether it fits in with our portfolio and whether we have the bandwidth to support them through whichever regulation route they’re going through. Equally, they can come in and be non-regulated and we can support them in remaining non-regulated.
“Everybody’s got to have a sandbox, it’s part of the fabric of what you need.”
We need to make sure we have the right use-cases to create the best regulation we can. It’s all very well looking globally and seeing what regulation exists and trying to create best practice but you really want a business that’s in that space to get it right. We have what we call nursery cases. People will come in and they might be a bit more immature than we might expect but they’re doing something which fits with our roadmap. We’ll work with them to create that regulation.
TFT: What sets the Isle of Man apart from other fledgling fintech hubs like Gibraltar, Malta or Luxembourg?
LW: Businesses will look to whatever jurisdiction fits best with them. So, what we offer is proximity to huge financial centres. I flew into London this morning and it’s no big deal to do that. The proximity to the e-gaming business, you’re not going to get that in London. There’s a surprising amount of that, I get as much regulatory demand for gambling as I do for finance.
Some people will want to Malta, our regulation is going to be different to theirs. They like to certify the actual DLT, we are not going to do that. Also, Malta’s got very busy which doesn’t suit everybody. We’re keeping our numbers small to make sure we can give everyone the full attention they need.
Luxembourg take even less than us into their incubator, I believe it’s 6 every 6 months. So, they’re looking at even less than we are but they’re offering a full incubation service. However, they’re not offering the regulatory side that we offer. It’s up to businesses to decide whether the Isle of Man fits them better than places elsewhere.
“We need to make sure we have the right use-cases to create the best regulation we can.”
TFT: Do you worry about the negativity often associated with ICOs and cryptocurrencies could be bad for the Isle of Man’s reputation?
LW: The Isle of Man has got an excellent gambling regulator. We’re the only jurisdiction in the world which hasn’t had a player protection issue because of the way that we regulate. We’re trying to bring that over into blockchain. When we’re working with blockchain businesses, I’m not really interested in ICOs. That’s not where the innovation is, it’s just a vehicle for raising funds. We do have ICOs on the island but it’s not a part of the market that I’m really looking at.
I wouldn’t let anybody into the office until they’d completed an ICO unless they were already innovating. There’s no hard and fast rules because this is a complex area so “no ICOs in the office ever” is probably not a good thing to say. But if someone’s only in their ICO and they haven’t started building the product then it’s a case of “get your ICO done, I want to make sure that’s clean before you come into the office.” What the office is really about is the innovation. Whether you’ve done the ICO on the island or somewhere else, as long as it’s clean, then you’re welcome at the blockchain office.
We have a physical location which has 80 desks, both open and private offices, for blockchain businesses and we’ve got the ability to expand that much more as well. There’s plenty of space for people to land, they have all their technology and everything with them. That’s where our blockchain office is situated. They’ve got direct access to the office, the regulators also come in there. We have all the ancillary businesses from CSPs to lawyers to marketing agencies who will all go in there as well. So you’ve got one place where everyone is coming in and they understand what blockchain is and how to work with it.
TFT: An almost daily interchange between the relevant parties then?
LW: Yeah, it’s just that hub of activity. It’s actually called “The Hubb.”
Outside of that the office we’re advising the government on how to embrace blockchain. We advise businesses on how to do it. We do education programs. Just a couple of weeks ago we did half a day with a lot of the CXOs on the island in which we took blockchain back to the 1950s and played a paper-based blockchain game.
TFT: How important is regulatory clarity to the future development of blockchain technologies?
LW: I think given its size, the FCA has made good strides to try and move forward in this area and we try to work really closely with the FCA so that anything that people do on the island can be accelerated through to the UK as well.
I think across the board, globally, the lack of understanding about where all this is going has stymied innovation somewhat. The issues we’ve had with things like ICOs have created something that’s quite grey. The money laundering aspects have also been spoken about at length and so people are just very cautious about what blockchain is.
Crypto and blockchain are two different things. We work with crypto as well but there has to be a good reason for using it. We don’t want people making tokens just for the sake of making tokens. You also see a lot of use cases that don’t stack up. We look at that when we’re bringing businesses in. On the other hand, it’s not for us to review whether or not a business is going to make money…unless we’re planning to invest in it, then we have to look at it through a different lens.
“We’re the only jurisdiction in the world which hasn’t had a player protection issue because of the way that we regulate.”
TFT: You mean some of these projects are eligible for government funding?
LW: We are investing in blockchain businesses … but for blockchain what I try to do is build a value proposition which is good enough without the investment.
Actually blockchain businesses tend to prefer to go through other funding models and not government support.
TFT: Do companies come to the island solely for a regulatory seal of approval?
LW: We’ve turned businesses away because that’s what they want. There are certain rules for coming in. You can’t come into the office and use our stamp of approval to drive the price of an ICO. That’s why we don’t let ICOs in. Equally, when you’re going through our regulatory process, there’s a media blackout so you can’t drive up your prices.
Mostly though, our businesses want to be part of an ecosystem where people are working on a similar kind of thing, where they’re being looked after and you’re all co-located in this space.
TFT: What’s in store for the next 18-months?
LW: I see a roadmap that’s going to shift and change a lot. Regulators are going to be sitting up and looking at things like Libra and trying to decide what that’s going to mean for them. That’s going to change the roadmap we’ve put out.
“our businesses want to be part of an ecosystem where people are working on a similar kind of thing, where they’re being looked after and you’re all co-located in this space.”
TFT: Is talk of shutting down Libra affecting how you approach the sector?
LW: Not at all, we’re full-steam ahead and always will be. But we’re not a first mover so we will always be looking globally and trying to bring best practice in. If we start trying to be a first mover then that puts businesses at risk because we can very easily make a mistake. In principal, we’ll always be a fast follower rather than a first mover.
TFT: Who are you following?
LW: It can be pretty much anyone. The FCA had some great ideas in their report in November so we’ve been looking at that. We look at Malta, we look at Gib’, I was out in New York a couple of months ago, I’ve been to Bermuda and places like that. I’m on my third jurisdictional comparison of regulation.
Every six months, we’ll look across what everyone else is doing … to make sure that we’ve got standards which match, if not exceed that. This is why it’s great to have PwC and KPMG in the office. I had PwC do the first one and KPMG did the second so you’re not just getting a repeat. We are making a concerted effort to keep our eyes open … to make sure we really know what’s going on. I met some guys from Zug and we’re talking about going out and visiting them to see what they’re doing. We’re not trying to compete with people, we’re trying to work with people.
TFT: Is that the flavour of things to come? Jurisdictions all just tippy-toeing forward together?
LW: There’s a great term I heard, cooperatition, and that’s kind of the way it’s going to move forward… if we all fight, it’s just going to slow things down.
