The regulation of cryptocurrencies around the world is a constant battle for investors in a growing and ever-changing ecosystem.
Various regulatory agencies around the world view digital assets in a different light that varies significantly from each other.
Recently, European Central Bank (ECB) board member Fabio Panetta mentioned in a written statement for a speech at Columbia University that regulators should follow a globally coordinated approach while regulating digital assets. He said the world should have digital assets regulated by the Financial Action Task Force’s Anti-Money Laundering (AML) and Counter Terrorist Financing (CFT) rules.
Panetta also talked about strengthening public disclosure, reporting on regulatory compliance in the industry, and putting in place certain “transparency requirements” and “standards of conduct.” He stated:
“We need to make globally coordinated efforts to bring crypto-assets into the scope of regulation. And we must ensure that they are subject to standards consistent with those applied to the financial system. We need to move faster if we are to ensure that crypto-assets do not trigger a frenzy of haphazard risk-taking.
The practicality of global regulation in question
That the ECB applies such rules throughout the European Union is one thing, and that the same rules apply to all countries of the world is another, because the ECB can behave as the regulatory entity in the EU. Yet, there is no clear definition of the regulatory body that would have the authority to conduct such coordinated regulatory activities.
Even more recently, Ashley Alder, president of the International Organization of Securities Commissions – an association of market regulators – spoke about this aspect during an online conference organized by the Official Forum of Monetary and Financial Institutions. He explained the need for a common body which will be in charge of coordinating the regulation of digital assets around the world and which could even become a reality this year.
On May 16, the Basel Institute of Governance and the International Academy of Financial Crime Litigators published an article also calling for additional coordinated action against illegal crypto markets. The paper suggests that investigators involved in cryptocurrencies should invest in learning approaches and technologies to keep pace with the evolving techniques of criminal organizations and entities.
Cointelegraph spoke to Bianca Veleva, head of legal and regulatory compliance at Nexo – a crypto lending platform – about the benefits of a global regulatory approach. She says:
“The adoption of a unified legal framework and/or principles for crypto-related activities may prove beneficial in terms of accelerating the legislative efforts of countries that have not yet recognized the benefits brought by the crypto industry, following the overarching framework that more forward-looking countries have already adopted and implemented. »
As the digital asset landscape expands and regulations begin to become clearer, a new paradigm could be underway in which the international regulatory consensus becomes unified. The mass adoption and increase in use cases of digital assets and blockchain technology is sure to provide a solid foundation for the eventuality of consensus among regulators and nations.
However, many countries have banned their citizens outright from indulging in cryptocurrencies and even their services. A prime example of this would be China, which announced an outright ban on digital assets in September last year. There are a total of nine countries that have banned cryptocurrencies, in addition to China: Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia have a blanket ban on crypto, according to a November 2021 Law Library of Congress report.
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This difference in how different countries view digital assets could be the biggest obstacle to a globally coordinated regulatory framework. Igneus Terrenus, policy advocate at Bybit, told Cointelegraph that while a global regulatory system makes sense to track the flow of funds and reduce regulatory arbitrage, the reality is that there is no universal regulator that can. to impose it on sovereign states. Realistically, this will have broader impacts on citizens and residents of countries that have responded positively rather than countries that choose not to participate.
Terrenus added that “a general framework that adapts to the whole world does not seem feasible given the disparities between countries, even in existing financial regulations. A workable model would focus on facilitating the exchange of information between entities and jurisdictions, which tax authorities already do through the banking system, deploying zero-knowledge proof technology to prevent fraud and improving regulatory clarity and consistency.
Another aspect to consider in the hypothetical event of globally accepted regulation for cryptocurrencies is that a consensus among different countries at different stages of adoption could lead to stifling of innovation and a plateau in adoption rates. Velova said:
“Any joint effort to unify the currently pending European regime for crypto-assets with the US legislative framework could be a double-edged sword. They may, in fact, hamper the pace of innovation and adoption of crypto at the EU level and lead to greater regulatory challenges for crypto businesses.
Coordination like never before
Despite the difficulties and challenges involved, some participants in the digital asset ecosystem remain positive about a move towards globally coordinated crypto regulation.
Justin Choo, head of the compliance group at Cabital – a cryptocurrency trading and passive income platform – told Cointelegraph that the current approach taken by countries could not be more varied when it comes to classes of money. traditional assets such as stocks, debentures and managed investment plans that work. with a regulated framework.
Compared to crypto-forward countries, Choo said, “I imagine a globally coordinated regulatory system would not go as far as what El Salvador and Argentina are doing just because the governments of the countries developed countries whose currencies are reserve currencies would not. don’t be prepared to give up the economic prowess – which is often used to influence international diplomacy – that they already have in favor of cryptocurrencies.
Global coordination on crypto regulation will require collaboration across industry and regulators around the world in ways never seen before. Terrenus said:
“Paternalistic protections based on decades-old laws may not be the most helpful approach. Truly sensible, meaningful, and impactful regulations should encourage transparency around terms, ownership distribution, vesting schedules, and accurate representation of the annual percentage return of crypto projects. This would improve overall information symmetry and reward investors who do their own research.
Especially after the recent high-profile fiasco with the Terra blockchain and its stablecoin, TerraUSD (UST), regulators have also started to take a closer look at the feasibility and viability of stablecoins. The European Commission has also revealed its intention to impose a general stablecoin ban on a large scale, given the massive economic and investor impact that was triggered by the crash of UST and Terra (LUNA) in the blockchain. Earth.
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As the adoption of digital assets increases, moving from one cycle of adoption and innovation to another, changing the regulatory landscape will be the most vital part of the transition of digital assets penetrating the masses. A global regulatory framework appears to be the ideal solution for the transition, but the hurdles in implementing such a framework will make the transition a lengthy process and highly unlikely to happen within a year.
Andreessen Horowitz – a crypto-friendly venture capital firm – recently released its “2022 State of Crypto” report, highlighting that the growth of decentralized markets has grown to a total value locked of over $100 billion in the two years following the creation of the concept. introduced. The report estimates decentralized finance (DeFi) to be the 31st U.S. bank by assets under management.
It is only natural that such a rapidly expanding industry requires regulators and central banks to innovate and evolve at the same pace. Even though a very cumbersome and globally coordinated regulatory framework slightly stifles innovation, investor protection is still the primary concern of regulators around the world.