Mike Castiglione, former CIA analyst and now Director of Regulatory Affairs, Digital Assets at Eventus, brings public sector expertise and perspectives to the trade surveillance and financial risk technology firm. In a Compliance in Focus Q&A, he describes how lessons learned in the public sector can be applied to digital assets clients as they navigate regulatory and market change.

Before joining Eventus last year, you worked in the public sector in various roles. Can you briefly discuss your background?

I worked in research and analysis for the Central Intelligence Agency (CIA) from 2007 to 2022. My primary responsibility was providing insights to policymakers about trends in national security and foreign affairs and how they might impact U.S. policy decisions. My early focus was geopolitical crises, wars, and conflicts. 

Later I led teams in data analytics, leveraging new forms of information, and analyzing the geostrategic implications of emerging technology. Technology is a foundation for state power, with opportunities to shape the world and promote democratic values, peace, and stability, but it also provides disruptive actors with an opportunity to try new tactics and exploit new weaknesses. Public-private cooperation is essential to stay on top of emerging technology risks. 

How does your experience in the public sector add value to your role at Eventus?

I bring a perspective from government that marries well with the deep capital markets and compliance expertise and technical skills that were already at the firm. 

One skill we were trained in at CIA was clear, concise communication, especially under high levels of uncertainty, which is certainly useful in a dynamic, innovative company like Eventus. I was lucky to have a diverse set of roles at CIA – including many on small teams working autonomously – so I’ve found those experiences gave me habits to deal with ambiguity in the tech sector. Eventus invests in its regulatory affairs expertise, so having policy experience interpreting and forecasting government action also has helped.

What lessons learned from the public sector can be applied to the digital asset space and why?

One thing I learned in the public sector is the importance of staying humble, because it’s rarely  clear which way emerging trends – or policies – will go. We all must routinely check our assumptions. It is hard to predict exactly what businesses will be built around digital assets, or how the markets will take shape. What we can control is the hard work needed to make crypto more widely useful and crypto markets safer against illegal activities.

Another lesson is to think of outcomes as probabilistic. It is hard to predict whether asset prices will go up or down, or what regulators will do in terms of rulemaking and enforcement. In foreign affairs, unexpected events happen regularly, so the main question is usually not “Did you predict exactly what would happen?,” but rather “Were you ready for a range of outcomes?”. Likewise, firms should think about financial compliance systems in terms of being ready for multiple scenarios.

What will pave the way for greater adoption of digital assets in the traditional finance community?

Crypto is exciting and has attracted a lot of top talent, but it is a different culture from the “ship fast and iterate” approach we saw in desktop and mobile technology. With crypto, a more appropriate mindset is “measure twice, cut once,” because if you deploy immutable code and it is hackable, bad actors can exploit it and there is less room to claw back mistakes. 

Therefore, compliance needs to be built early in the journey as a core function, rather than an add-on when applying for a license. Many digital assets firms emphasize compliance and trust and safety as part of their company culture, and they see doing so as a differentiator among their competition. So early on they must think about sanctions evasion, market manipulation, and anti-money laundering, for example.

Traditional financial institutions are inherently more cautious and conservative than smaller crypto-focused firms, and they already have well-established compliance processes. This can be an advantage, but only if they continually innovate their internal compliance technology; otherwise, legacy systems will bog them down. They need ways to carefully follow complex rules in an efficient way.

What lessons learned from collaborations between the public sector and digital asset space can be applied to getting ‘TradFi’ players more involved in digital assets?

It is important to have continual dialogue and active trade associations, so the industry can educate itself and regulators. For example, firms like Eventus can explain where the technology is and what capabilities exist to manage risks. Many of the problems in crypto markets, such as market manipulation, have parallels in traditional financial markets and can be solved using institutional grade technologies like we have built at Eventus.

Regulatory headwinds are also putting more focus on compliance. In Europe, the Markets in Crypto Assets (MICA) is scheduled to be finalized in April 2023 with an 18-month implementation deadline. This includes rules against market abuse and a requirement for crypto asset service providers to monitor their trading, and their clients’ trading, for manipulative behavior. It applies many of the same rules of traditional finance to crypto. 

The UK is also exploring how to apply existing regulations to crypto, also with a heavy emphasis on combating market abuse and insider trading. Many in the industry are optimistic that these initiatives in Europe could set the standard in the industry globally by providing enough guardrails and business confidence for crypto firms and institutions to take real business decisions and grow their investments in this emerging technology. 

How do you keep up with your client ‘pain points’?

We put a lot of emphasis on client engagement and responsiveness to client feedback which enables us to be flexible and adapt our software’s parameters to fit what they need. We design the software to improve the user experience and encourage close collaboration with the client, so we have an ongoing ability to adjust and help them revalidate their surveillance systems as markets and the regulatory environment change.

What do you hope for the industry this year?

We want more predictability, stability, and safety in crypto markets. People want to know that the price they are seeing is the best price and is unaffected by market manipulation or bad actors, and that criminals are not exploiting the apps and markets they are using through money laundering. We hope a regulatory path develops that will enable entrepreneurs to experiment and innovate to find new ways to improve people’s lives with crypto and blockchain technology. 

*Join Mike Castiglione and Eventus at the DC Blockchain Summit on Tuesday, March 21