Finance + Law: The Future "Arms Race" of Tech Giants

Author: Zhang Feng

In today's era, a striking trend is increasingly evident: tech giants such as Google, Microsoft, and Ant Group are collaborating with top research institutions in the fields of finance and law with unprecedented enthusiasm.

What kind of strategic logic is hidden behind these seemingly cross-border or even "cross-domain" collaborations? In the emerging and complex field of the cryptocurrency industry, why does such cooperation seem particularly urgent? We believe it is necessary to delve into the driving forces behind this phenomenon and further outline the roadmap for both parties' future development.

1. The Intrinsic Logic of the Marriage Between Tech Giants and Financial Legal Research

The collaboration between tech giants and financial and legal professional institutions is not coincidental, but rather an inevitable choice at a specific stage of the development of the digital economy, which contains profound business logic and strategic considerations.

First of all, compliance has become a prerequisite for the development of technology businesses. With the deepening development of the global digital economy, technology companies, especially those involved in financial technology, are facing an increasingly complex regulatory environment. Taking Ant Group as an example, its collaboration with top domestic law schools to establish a digital finance legal research platform is by no means a simple act of public welfare. Through cooperation with authoritative legal research institutions, technology companies can more accurately grasp the regulatory pulse, embedding compliance elements at the early stages of product design and business expansion to avoid significant operational risks caused by compliance issues.

Secondly, financial services are a key pathway for technology giants to realize the value of their ecosystem. As their operations delve into the core of finance, technology giants must embed legal compliance into the origins of product design to avoid disruptive regulatory risks. At the same time, financial services are a crucial pathway for realizing their ecosystem value, requiring the assistance of professional institutions to understand complex financial rules and risk logic.

Companies like Google and Apple are actively investing in payment, digital wallet, and other financial services, not just for the profits of these financial businesses, but more importantly for the role that finance plays as the "lifeblood" of their core ecosystems, enhancing cohesion and catalyzing growth. Through research collaborations with financial institutions such as the Federal Reserve and the World Bank, tech giants are able to gain a deeper understanding of financial operating principles, seamlessly integrating financial capabilities like payment, credit, and insurance into their own ecosystems, creating a closed loop of data-scenarios-finance, which greatly enhances user stickiness and ecological value.

Once again, legal technology itself is a vast blue ocean market. According to incomplete statistics, the global legal technology market has exceeded $20 billion and is growing at an annual rate of over 20%. The collaboration between Microsoft and top law firms like Baker McKenzie, and IBM's partnership with Stanford Law School to build a legal AI lab, aims not only to optimize their own compliance systems but also to jointly explore this new blue ocean of legal technology. By applying technologies such as natural language processing and blockchain to scenarios like contract review, compliance monitoring, and intelligent litigation, tech giants are nurturing new business growth points.

In addition, this cooperation is also a strategic investment in corporate social responsibility and brand image. Technology giants collaborate with authoritative institutions to jointly research cutting-edge topics such as financial inclusion, data privacy protection, and algorithm ethics, which not only allows them to proactively avoid potential public opinion and policy risks but also helps establish an image of a responsible innovator among the public and regulatory bodies, creating a friendly social environment for long-term development.

2. The Extreme Importance of Financial and Legal Cooperation in the Cryptocurrency Industry

In the emerging field of the cryptocurrency industry, the collaboration between tech giants and financial legal institutions is particularly urgent and necessary, which is determined by the characteristics of the cryptocurrency industry itself.

The crypto industry urgently needs to establish best practices and industry standards. As an emerging field, the crypto industry has long been in a state of "barbaric growth," lacking mature technical standards, business norms, and risk control systems. If tech giants want to make an impact in this field, they must collaborate with financial legal institutions to jointly explore compliant business models and technical standards. For example, when Facebook (now Meta) launched the Libra (later renamed Diem) stablecoin project, it faced repeated setbacks due to regulatory pressures, ultimately having to significantly adjust its original plan and bring in more experts from traditional finance and legal fields. This case vividly illustrates that in the crypto field, technological innovation without the support of financial law is like water without a source, making it difficult to sustain.

Cross-border regulatory collaboration is the institutional foundation for the development of the cryptocurrency industry. Crypto assets inherently possess cross-border attributes, while regulation still operates within the boundaries of sovereign states. This contradiction leads to significant regulatory uncertainty and compliance costs for the cryptocurrency industry. Technology giants can actively participate in the formulation of international regulatory rules by collaborating with international organizations, national regulatory agencies, and leading legal research institutions, thereby promoting the establishment of a coordinated and unified cross-border regulatory framework. For example, internet e-commerce giants have conducted joint research with the International Monetary Fund (IMF) on the topic of digital currency, which not only helps Chinese companies engage in global rule dialogue but also clears institutional barriers for their internationalization efforts.

Risk prevention and control is the lifeline of sustainable development in the cryptocurrency industry. The crypto market is highly volatile, with frequent security incidents, and illegal activities such as fraud and money laundering occur from time to time. Relying solely on technical means is insufficient to fully address these risks; it is essential to introduce financial risk control models and legal compliance frameworks. The collaboration between Microsoft and institutions like Ernst & Young in the field of blockchain compliance aims to establish a more comprehensive risk identification and prevention system, protecting investors' rights and maintaining market stability. Without a sound financial legal risk control system, the cryptocurrency industry will forever struggle to shed its "high-risk" label and will be unable to gain widespread acceptance from mainstream society.

3. Recent, Medium-term, and Long-term Cooperation Roadmap

Based on the above analysis, the cooperation between tech giants and financial legal institutions in the cryptocurrency field can follow a clear evolutionary path, gradually moving from solving specific problems to building systems and innovating paradigms. The so-called short-term, medium-term, and long-term cooperation, especially the specific topics involved, are merely divisions made for the sake of analysis and are not completely separate; rather, they are interrelated and permeate each other, flexibly adjusted in actual development according to specific business scenario needs and industry development conditions.

Focus on specific risks and compliance challenges in the near term. In the recent phase, cooperation should focus on the most pressing operational risks and compliance challenges.

There are many areas in the financial sector that can be focused on, including but not limited to the development of valuation and risk assessment models for crypto assets, helping the market to view the value of crypto assets more rationally; on-chain transaction monitoring and anti-money laundering technology research to address the increasingly severe challenges of illegal financial activities; liquidity risk stress testing for DeFi (decentralized finance) protocols to prevent systemic risk.

The legal field should focus on urgent matters, including but not limited to comparative studies of cryptocurrency regulatory policies in major global jurisdictions, providing guidance for corporate compliance layout; research on the legal validity of smart contracts and dispute resolution mechanisms to clarify the legal boundaries of technological innovation; compliance solutions for data privacy and cross-border data flow to address data governance challenges in cryptocurrency businesses.

Promote the construction of standards and regulatory coordination in the medium term. In the medium term, cooperation should move towards deeper levels of rule and standard construction.

The financial sector can focus on the formulation of new financial infrastructure standards based on blockchain, laying the foundation for the integration of traditional finance and crypto finance; research on the interoperability and risk management framework of Central Bank Digital Currency (CBDC) and private stablecoins, exploring a digital currency system for public-private sector cooperation; development of accounting treatment and tax collection standards for crypto assets, addressing the challenges of integrating finance and business.

The legal sector needs to promote the coordination and mutual recognition mechanism of global crypto regulatory sandboxes, managing risks while encouraging innovation; the legal status identification of new organizational forms such as DAOs (Decentralized Autonomous Organizations) provides institutional guarantees for Web3 organizational innovation; the design of bankruptcy handling and investor protection systems for crypto assets improves the market exit mechanism.

Reconstructing the forward guidance system and innovating paradigms. Looking ahead, the cooperation between both parties should focus on the deep restructuring of the financial and legal systems.

The financial sector can explore a new financial market architecture based on blockchain and smart contracts, significantly enhancing financial efficiency and inclusivity; the theory and practice of algorithmic central banks and programmable currencies, rethinking the mechanisms of currency issuance and regulation; the macroeconomic policy framework of a tokenized world, addressing the challenges posed by asset digitization to traditional macro policies.

The legal field requires forward-looking research, including but not limited to the governance philosophy and institutional implementation of Code is Law, exploring technical paths for autonomous compliance; the system of encryption rules under the global digital governance framework, addressing the tension between nation-states and the global network; and the new allocation of legal responsibilities arising from the integration of artificial intelligence and blockchain, preparing for future scenarios of technological integration.

The emphasis placed by tech giants on cooperation in financial and legal research is by no means a short-term strategic move, but rather an inevitable evolution of corporate strategy in the digital economy era. In the vibrant yet complex and sensitive field of cryptocurrency, the tri-spiral structure of technology, finance, and law is accelerating in formation. Technology provides innovative tools, finance contributes risk control and value logic, while law offers the foundation of order and trust. All three are indispensable and empower each other.

The competition of the future will no longer be a competition of single technologies or products, but a competition of ecosystems and systems. Those technology companies that can first establish a virtuous interactive cycle of technology-finance-law will not only be able to remain undefeated in the waves of the crypto industry, but are also more likely to become important rule-makers in the future digital economy society. The deep collaboration between production, academia, and research is the only way to this future.