Blockchain needs shrewd financial regulation: Franklin Templeton boss

Blockchain is quickly shaking up the financial sector and, given the popularity of bitcoin exchange-traded funds (ETFs), regulators will need to step up their game when it comes to consumer protection and oversight of the burgeoning industry, according to the president and chief executive of fund manager Franklin Templeton.

“I’m so bullish on blockchain,” said Jenny Johnson at the first distinguished speakers series event of the year, organised by the Hong Kong Academy of Finance on Tuesday. “It drives out costs in the system and reduces the size of transactions.”

The academy, which brings together academics, industry leaders and the regulatory community to develop financial leadership, hosts a number of fireside chats each year with global financial heavyweights.

She said blockchain technology, like smart contracts, can make transactions dramatically cheaper, cutting out the “middle man” in many processes, and making systems more efficient.

The global asset manager has its Asia headquarters in Hong Kong and has steadily grown its presence in the city, even during the Covid-19 pandemic when many companies cut back. She said this was a tribute to the city’s importance as a connector and gateway to China.

“China is an important market. You can’t be a global asset manager without being able to have a presence here, in both Hong Kong and China,” she said. The Greater Bay Area and the Wealth Management Connect scheme provide a tremendous opportunity for an asset management company to grow, she added.

Bitcoin ETFs are the latest technology disrupting the industry and generating hype among investors. Franklin Templeton have their own bitcoin ETF product.

“You either believe in the bitcoin story, or you don’t, and if you believe in the bitcoin story, then [bitcoin ETF] is a way to access it,” said Johnson.

As with any new type of investment, government bodies and regulators will need to step up to help protect and educate consumers, she said.

“The regulator’s job is not to stop any risk to the consumer [or to stop him] taking a risk, but to make sure the consumers are aware of what they’re investing in,” she said.

For example, regulators need to ensure there’s transparency to build a certain amount of protection around cryptocurrency investments.

But there is a limit to what regulators can do, and in the end governments can’t “stop” people from losing money, as investments come with risks, said Johnson.

In order to allow for further innovation in blockchain development, there needs to be a level of balanced regulation and enforcement, she said.

“To Hong Kong’s credit, [the government] has done a wonderful job of providing a certain amount of regulatory clarity for those who are interested in leveraging blockchain technology,” said Johnson.

“If you over-regulate, you’re not going to get innovation. On the other hand, if there isn’t clarity around the rules, then people are afraid that they’re going to get in trouble, and they won’t innovate either.”

The mission for watchdogs will be to provide clarity around the new technology, that ultimately protects the consumer and simultaneously promotes growth.

“Providing a certain amount of clarity in these new areas, watching the market evolve, and creating an environment for you to get feedback as that market evolves, is really important,” said Johnson.