Coordinating regulatory frameworks across jurisdictions is a complex task for almost any sector. With crypto-assets – given the unique features of the underlying technology as well as the boundless opportunities that it presents – it is often contended that global coordination is not just desirable but necessary.
There exists a broad spectrum of views, especially as there are multiple stakeholders at varying levels
of maturity, and the need for a global approach is warranted due to:
The borderless nature of technology: as the crypto-asset ecosystem moves across the spectrum from centralized to decentralized, the intricacies in identifying the “who”, “where” and “whom” also become markedly difficult.
The potential of interconnectedness within the crypto-asset ecosystem and with the traditional
financial system: events in 2022 have evidenced that the crypto-asset environment is highly interconnected, meaning that fragmented regulatory regimes will create challenges for ensuring uniform consumer protections or market integrity efforts. As the potential for connectedness with the traditional financial system is examined, the need for a collaborative approach is even more pronounced.
While the global approach is an ideal pathway, there are various barriers that impede this:
Lack of harmonized taxonomies/classification: different jurisdictions define and categorize crypto-assets in various buckets, creating ambiguity in understanding the risks posed as well as a lack of clarity for market participants.
Regulatory arbitrage: as different jurisdictions evolve their respective regulatory frameworks,
this hampers effective oversight and development of the ecosystem.
Fragmented monitoring, supervision and enforcement: lack of coordination among various law-enforcement agencies leads to inconsistent enforcement and lack of coherence in regulatory approaches.
Over the past few years, various international standard-setting bodies and organizations have made considerable efforts to produce evidence-based research as well as high-level frameworks to evolve a global approach. Amid this, some countries have also chosen to focus on certain key aspects of the ecosystem, often with the objective of ensuring consumer protection, prevention of illicit financing and financial stability, but taking varied approaches. This paper discusses some jurisdiction examples pertaining to a wide spectrum of regulatory approaches such as principle-based, risk-based, agile regulation, self and co-regulation and finally, regulation by enforcement.
To ensure a broad and global view of this topic, diverse stakeholders as part of the Digital Currency Governance Consortium were consulted to evolve recommendations for the international organizations and national/regional authorities as well as industry stakeholders, while duly acknowledging the critical role of academia, civil society and, most importantly, the users in evolving a responsible ecosystem.
nterestingly, the recommendations appreciate that the distinct opportunities and risks presented
by crypto-assets will also need an innovative approach, while building on lessons learned and best practices developed in other sectors as well.
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