Webcast Replay | Digital Asset Risk, Insurance, and the Year Ahead

The global regulatory clarity that digital asset companies have long sought is slowly but steadily materializing, helping to drive a stronger commitment to risk management within the space, panelists on a recent Lockton webcast said.

“On a global basis, the regulatory environment for digital assets looks slightly more optimistic than in the past,” said Ian Graham, Northeast U.S. Blockchain & Digital Assets Advisory Leader at Lockton.

Although the upcoming U.S. presidential election and retirement of House Financial Services Committee Patrick McHenry may slow the progress of some regulatory initiatives, a Stablecoin bill remains in play in Congress, and the Securities and Exchange Commission (SEC) in January approved the issuance of 11 spot bitcoin exchange-traded funds (ETFs).

The U.K., meanwhile, added cryptocurrencies and digital assets to its Financial Services and Market Bill in 2023, and established a digital securities sandbox that began operations in January. In the EU, the Markets in Crypto-Assets Regulation (MiCA) will take effect in 2024.

Elsewhere, regulators in Hong Kong, Singapore, and the United Arab Emirates have also been active.

The emerging regulatory framework, coupled with industry efforts, has helped to drive adoption of digital assets higher, including in emerging markets. Six of the top 10 countries on Chainalysis’ 2023 Global Crypto Adoption Index, published last October, are in Central and Southern Asia, including India, which topped the list.

“The industry as a whole has been pretty nimble in its efforts to facilitate greater adoption,” said Joe Gent, U.K, Blockchain & Digital Assets Advisor at Lockton. “For example, the industry pivoted to offer more self-custody solutions after the FTX fallout and the handful of bankruptcies the industry saw towards the end of 2022. However, many feel that continued education as to why digital assets are a game-changer remains top of mind.”

These trends are helping to fuel the maturation of risk profiles for companies in the digital asset space. “We’ve seen an increased focus on risk management, including a focus on the benefits of maintaining a robust insurance program,” said Sarah Downey, Global Blockchain & Digital Assets Advisory Leader at Lockton. Downey also noted efforts to “[adapt] company policies to keep up with the regulatory landscape as that becomes more developed.”

Aiding digital asset companies in their journey to more effective risk management is a more committed insurance industry. More insurers are competing to underwrite digital asset risks, adding capacity to the market and introducing new and innovative solutions for digital asset buyers.

“There are a handful of insurers who have invested a lot of time to learn the digital asset space and create truly valuable solutions that address its specific exposures,” Graham said.

Watch a replay of the webcast below.