Veteran financial services general counsel Stuart Alderoty took the legal reins at Ripple Labs Inc. in January, diving into a payments and blockchain industry that often still lacks strong regulatory clarity.
Six months into the job, Alderoty has worked with global regulators and settled into the financial technology sphere. Corporate Counsel spoke with the San Francisco-based general counsel about his relationship with regulators, the state of regulatory clarity worldwide, and his shift from traditional financial services. This interview has been edited for clarity and length.
Corporate Counsel: You’re at a startup in a relatively new industry, with a background at traditional financial service companies. Has your risk threshold changed?
Stuart Alderoty: I would not describe it as my risk threshold changing. As a general counsel, my No. 1 obligation is to be a true counselor to the business and whether I’m working for a public bank or Ripple that involves enabling the company to achieve their goals and do so in a way that keeps them within the regulatory guardrails. One thing that attracted me to Ripple is that from its inception, the company has always embraced regulation.
CC: You try to keep Ripple within the regulatory guardrails. But I’ve heard from a lot of GCs that those guardrails aren’t always clear for cryptocurrency companies. How do you help grow the business when there is not always regulatory clarity?
SA: The laws, rules and regulations around blockchain and the use of digital assets as a mechanism to move money is the vanguard legal issue for a lawyer today. And you’re right. The laws, rules and regulations, depending on where you are around the globe, some jurisdictions are clearer than others, some are more uncertain than others.
I don’t think it goes to changing your risk tolerance. I think it goes to your ability to make informed decisions as to what is appropriate in the absence of perfect clarity. But even at a public bank where you have a mature set of laws, rules and regulations, most questions that are posed to the general counsel are not the easy ones. They’re the hard ones, where the answer is not binary but usually somewhere in the grey area and you have to make an informed decision. So that’s what we do with Ripple.
One of the indicators we would look to in any geography is, ‘Where’s the market?’ Oftentimes the market itself is making decisions for itself, and sometimes the market itself is not waiting for regulatory certainty or clarity.
CC: So without regularity, you use what’s happening in the markets to make an informed decision?
SA: The market is one of many factors. For any jurisdiction where the laws, rules and regulations have not yet been clarified, there is usually a basis of law that you can find either in the common law or statutory law. Then you have to make your own analysis of whether what the company wants to do can comfortably fit in that body of law in the absence of a regulator expressly saying publicly that they have reached the same conclusion.
So it’s three components: looking at the existing body of laws, rules and regulations, which includes common law, statutes, regulations, conducting our own analysis and, three, looking oftentimes at the market itself, if it’s moving on and making decisions for itself.
CC: Are you seeing a push toward regulatory clarity in most jurisdictions?
SA: We’re a global company, and it runs the spectrum. Singapore or the Philippines, they’re more open. India for the moment is more closed on the digital asset piece. Regions in the middle, including the U.S., are still trying to develop what the laws could look like.
CC: Are you working to educate regulators?
SA: We have government affairs, full-time representatives in the U.S., in Europe, in Asia Pacific. We regularly meet with regulators to educate them, to get them more comfortable with what we’re doing and trying to do, which is to solve for the very real-world problem of being able to move money cross-border without a lot of friction and expense.
We’ve also sat on the Federal Reserve Faster Payments Task Force. We’ve hosted a summit for central banks to learn more about blockchain. We regularly speak on panels. We’re often invited by regulatory organizations to come speak or serve on panels. I would say we’ve engaged with more than 50 regulators and policymakers worldwide on this issue.
CC: What do those educational sessions usually look like?
SA: It’s a range. It depends on how mature the audience is in terms of their knowledge. It could be the basics of blockchain technology, how a digital asset may or may not be used to facilitate the cross-border payment, or what Ripple actually does and how we do it.
Then there are other conversations where a policymaker may have already issued a proposal and a request for comment, and we’re going to have a conversation specifically about that.
CC: Has your relationship with regulators changed as a fintech general counsel versus when you were at a traditional financial services company?
SA: I’ve always worked with regulators closely. I think the difference is that when you’re working with a traditional bank, the primary regulators who are supervising our banking activities are embedded in the institution. That relationship is a very close one because the regulators happen to be sitting in your office.
The regulatory supervisory regime for public banks is much more mature and defined than it is for the industry that we’re talking about now. So my relationships with regulators have always been close but now it is more outreach-focused.
CC: Do you collaborate with other fintech companies to push for regulatory clarity?
SA: Because Ripple is unique, we have a very defined use case that we’re laser-focused on, oftentimes we find the conversations we’re having with regulators we’re having one-on-one.
I have found the move to Silicon Valley to be very welcoming. When other general counsel realized I was out here, I got calls for coffee and lunch just to meet them and talk to them. There’s a conversation that’s going on in this space, that is filled with energy and everyone is leaning into that conversation.
CC: If you could get regulatory clarity on one issue, what would it be?
SA: I think the issue of the day that everyone is talking about is which digital assets are securities and which digital assets are not securities.
The [Securities and Exchange Commission] is trying to work hard to solve for that. They’re issuing guidance, bringing enforcement actions, which is a way for regulators to point to the industry and say, ‘That’s what we think.’ They’ve issued one no action letter and have indicated more no action letters may come. That’s their way of telling the industry, “That’s what we think good looks like.” So they’re starting to develop the guardrails.
I think greater clarity on that point would be welcomed by all of the market participants. That being said, I think this is one area where the market is moving on and making decisions for themselves.
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