Regulatory Landscape 101

As cryptocurrencies continue to command mainstream attention, it's clear that global regulatory bodies are trying to keep up, implementing legislation aimed at enhancing both consumer and investor protections. So, what is the current state of play?

Global Regulatory Momentum

In May 2023, the International Organization of Securities Commission (IOSCO) laid out 18 "Policy Recommendations for Crypto and Digital Asset Markets". Designed to help support jurisdictions interested in creating compliant markets for the trading of crypto-assets, the IOSCO's recommendations cover the following:

• Common Standards of Regulatory Outcomes
• Governance and Disclosure of Conflicts
• Order Handling and Trade Disclosures
• Listing of Crypto-Assets and Certain Primary Market Activities
• Abusive Behaviors
• Cross-Border Cooperation
• Custody of Client Monies and Assets
• Operational and Technological Risks
• Retail Distribution

The World Economic Forum (WEF) is also advocating for—and reporting on—global regulatory alignment, and released a whitepaper titled "Pathways to the Regulation of Crypto-Assets: A Global Approach" in May 2023. In the 2023 whitepaper, WEF suggests that the need for "global coordination is not just desirable but necessary" because of the borderless nature of technology and the potential interconnectedness within the crypto-asset ecosystem.

Regulators and governing bodies are also increasingly focused on cross-border coordination. Given the intention for cryptocurrencies to become traditional financial alternatives and achieve mainstream adoption similar to government-backed, country-specific fiat currencies, it is certainly important that there is consistent oversight across jurisdictions and for regulatory bodies to be in agreement.

Major Market Developments

Major market developments have significantly impacted the regulatory landscape.

• The US approved Bitcoin and Ethereum Spot ETFs in 2024, a significant milestone offering institutions a regulated entry into crypto assets
• Europe’s MiCA regulation introduced in June 2023 established a framework to ensure financial stability, investor protection, and market integrity across the EU crypto sector
• In the UK, the FCA and Bank of England are focused on regulating stablecoins under the Financial Services and Markets Act 2023, covering, but not limited to, payment, issuance, and custody requirements.

All over the world, governments are increasingly looking for ways to protect consumers and regulate the buying and selling of cryptocurrencies, and mandatory licensing requirements are being adopted worldwide.

Enhanced Consumer / Investor Protection

Numerous new regulations are being implemented to enhance consumer / investor protection.

The EU's MiCA regulation has approved a 14-day "cooling off" period for cryptocurrency purchases, allowing customers to withdraw their agreement without penalty or explanation. However, the right of withdrawal does not apply to crypto-assets that have already commenced trading prior to the purchase by the retail holder.

Additionally, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) is enforcing stricter wallet verification processes for crypto exchanges, requiring them to verify (and monitor) transactions to non-custodial wallets.

Improved transaction monitoring systems are aiding these efforts by identifying suspicious activity to combat money laundering.

Thanks to varying regulations in the past, Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements have historically been very inconsistent. Recently, crypto exchanges are increasingly required to implement rigorous KYC and AML checks, including document verification and transaction monitoring.

Regulators are also prioritizing the prevention of market manipulation. In June 2023, Hong Kong's Securities and Futures Commission (SFC) issued guidelines for crypto exchanges, emphasizing the need for effective market surveillance systems from reputable providers.

Looking Ahead

Global principles for crypto regulation are clearly emerging, aiming to balance innovation with investor protection. While some guidelines may challenge the decentralization sought by many in the crypto community, they are arguably essential for the mainstream adoption of crypto-assets. This trajectory is likely to persist.