Technological innovation is ushering in a new era of opportunity and prosperity. The development of the internet gave rise to e-commerce, which has transformed how people do business. The advent of blockchain technology is now doing the same for the world of finance.
The crypto ecosystem continues its rapid growth, presenting opportunities and challenges for businesses and investors. As the industry expands, so does the number of jurisdictions adopting regulations around cryptocurrency. According to an analysis by BanklessTimes.com, 190+ global jurisdictions have adopted crypto regulation at varied speeds and approaches.
Jonathan Merry, BanklessTimes CEO, said:
The jurisdictions that have been the most welcoming of cryptocurrency and blockchain technology are Malta, Germany, Switzerland, Singapore, and Canada. These countries have enacted friendly regulations that have attracted many businesses in the crypto space.
Conversely, jurisdictions such as China, Netherlands, Japan, India, and Algeria have taken a more aggressive approach, banning cryptocurrency exchanges and Initial Coin Offerings (ICOs).
Regulatory approaches to cryptocurrency differ from one jurisdiction to another. The most common regulatory approach has been treating cryptocurrencies as commodities or property subject to taxation.
The US, for instance, does not consider cryptos as legal tender but cryptocurrency exchanges as money transmitters. The Internal Revenue Service (IRS) taxes cryptocurrencies as property. In contrast, El Salvador has classified specific cryptocurrencies as legal tender.
The US Treasury has emphasized crypto regulations to fight against global and national criminal activities. FINCEN (Financial Crimes Enforcement Network) has a new cryptocurrency regulation requiring data collection from crypto exchanges and wallets. The rule requires exchanges to submit suspicious activity reports (SAR) for transactions over $10,000. Wallet owners must identify themselves when sending more than $3,000 worth of cryptocurrency in a single transaction.
Financial experts believe cryptocurrency needs a global regulatory system. Like financial services providers, they need a guide that runs across nations. For instance, critical crypto-asset service providers should have licenses.
Additionally, crypto assets and stablecoins should have specific requirements. Besides, investment services and products should be regulated like securities brokers and dealers. Moreover, there should be a procedure that clarifies licensing and authorization standards.
Many analysts suggest regulated financial institutions should have defined crypto exposure and involvement criteria. If regulated firms provide custodial services, requirements should address the risks.
Some emerging markets confront significant dangers of currency substitution by crypto assets. Cryptoization requires fine-tuning capital flow management.
Cross-border collaboration is vital to address technological, legal, regulatory, and supervisory issues. Creating a coherent, coordinated crypto regulatory framework is challenging.
International organizations are playing a role in the development of global crypto regulations. The Financial Action Task Force (FATF) is one such organization. It has published guidance for a risk-based approach to regulating virtual assets and virtual asset service providers (VASPs).
The Bank for International Settlements (BIS) is another. It has published a report that assesses the state of play in central banks’ approaches to crypto assets.
The G20 is also active on the regulatory front. In October 2019, it endorsed the FATF standards and committed to implementing them by June 2020. The group also urged relevant standard-setting bodies (SSBs) to develop global standards for crypto assets.
The 2020 G7 summit reaffirmed the group’s commitment to global stablecoin regulation. It also urged the FATF to provide an interim report on its work by April 2021 and a final report by October 2021.
The coronavirus pandemic has highlighted digital finance's importance in the global financial system, including crypto assets. In response, the G20 called on the FATF to expedite its work on crypto assets and provide an interim report by July 2020 and a final report by October 2020.
The OECD is also active in this space. It has published a discussion paper that assesses the challenges and opportunities of crypto assets.
The Basel Committee on Banking Supervision (BCBS) has also published a report that assesses the prudential risks and opportunities of crypto assets.
Thus, there is a growing recognition of the need for global crypto regulation, and it's a matter of time before a more coordinated and comprehensive regulatory approach emerges.
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