There is a common thread in the strategies used by the increasing number of nations looking to compliance the cryptocurrency markets: lowering financial risk.
The recent collapse of Terra was a low point for cryptocurrency and called into doubt the reputation of the sector. Such a crisis, which has resulted in huge losses for investors and wiped out tens of billions of dollars in market capitalization, is pressuring regulators to move more quickly to tighten up control over the world of digital assets.
Around the world, nations are adopting a wide range of strategies, with the UK currently lagging behind certain jurisdictions that were quicker to adopt a more regulated strategy.
In any framework that is chosen, a balance must be struck between enhancing investor protection and preserving the ability of blockchain and cryptocurrency enterprises to innovate at the rate that has generated so much anticipation and promise.
There are various Compliance approaches used globally.
Regarding how to regulate cryptocurrencies, the globe is greatly divided. Although it has yet to establish a clear compliance framework for the asset class, it often follows its cues from the US when it comes to the regulation of financial services.
However, in what was seen as a tangible acknowledgment of the potential of the cryptocurrency business, U.S. President Biden approved a much-anticipated Executive Order on Ensuring the Responsible Development of Digital Assets in March.
The directive outlines activities for researching and engaging in cooperative problem-solving about identified hazards associated with the legacy financial system and the new Web3 environment. With a focus on privacy, security, financial inclusion, and the USD’s competitiveness across the globe, this order will instruct authorities to coordinate their regulatory efforts.
Furthermore, the US just passed the Responsible Financial Innovation Act, which aims to protect consumers from financial innovation that is done at their expense. The measure would also examine how cryptocurrency affects the environment, which is crucial to determining its long-term survival.
Meanwhile, neighboring Canada approved a Bitcoin exchange-traded fund (ETF), and proactively issued guidance requiring local crypto trading platforms and dealers to register with provincial regulators. Just last year, Canada unleashed a clear registration regime for trading platforms that provide custodial services to local clients. This has seen several firms register under the new rules, with the sector experiencing healthy growth in the region.
Additionally, there are advancements in Asia and the Middle East. This year, Dubai published its first law governing digital assets. India, on the other hand, has handled cryptocurrencies with caution, with the Ministry of Finance likening them to Ponzi schemes.
However, India came in second place out of 154 nations in the crypto adoption index last year, indicating that the government may need to reconsider its position.
While the EU has suggested a more comprehensive framework to govern issuers and service providers working with crypto assets in the EU, Switzerland has probably gone the farthest in Europe in enacting blockchain rules, having licensed two crypto banks as early as 2019. A draught of the regulation was recently passed by the European Parliament, and the heads of the EU’s member states and the executive branch will be consulted.
A European “passport” will be introduced by the new rule, allowing crypto platforms and service providers from outside the EU to apply for a license that will let them operate in all EU member states.
Minimizing Monetary Risk – A Regulatory Approach
When things go well, innovation can lead to exhilarating growth and riches, but when problems occur, there are unavoidable repercussions, thus the crypto market needs to be realistic about how much freedom it can have in a growth environment.
Stringent procedures, such as prior authorization for issuers to operate, capital and liquidity requirements, and accounting and auditing obligations, must be in place for the new regulations that are being proposed to be effective. In turn, this will give customers the assurance they need to keep using cryptocurrency as a substitute for traditional financial alternatives.
To bring growth and governance, a delicate balance is necessary.
If we want to see widespread mainstream adoption of crypto technology in commerce and the financial markets, regulatory clarity and effective governance are crucial. Additionally, more targeted compliance guidelines may be able to reduce speculation on cryptocurrency assets.
The less speculative activity might boost investor confidence, which might entice longer-term investors who haven’t yet been drawn to the highly volatile, speculative crypto market.
Overall, it is obvious that regulatory compliance is still a work in progress on a global scale. However, whatever additional steps are taken, they should be based on a straightforward principle. Perhaps Janet Yelland, the US Treasury Secretary, best stated it in a recent speech when she said, “Our compliance frameworks should be designed to support responsible innovation while managing risks, especially those that could disrupt the financial system and economy.”
The future prospects of an industry that has amazed some but still worries others will likely be most influenced by this balance, which regulators must achieve.