What is Crypto Regulation?
Since the events of 2022, especially the collapse of various crypto companies, the discussion of crypto regulation gained raw urgency. What do regulatory regimes of the crypto universe look like? How are those frameworks and regulations different from those institutions operating in the banking space? And why is there a need for such regulation for the development of the crypto space? This articles focuses on attempting to answer what the existing state of crypto regulation is, what are the issues in the way of this regulation which has not been developed yet including the differences with bank regulation, and what the attempts are being made in order to formulate the regulation of a crypto market.
Regulation vs. Legislation
The words ‘regulation’ and ‘legislation’ are often used in the same context implying they mean the same thing, but they are two distinct elements within the legal continuum. One of the activities that fall under the umbrella of legislative work is referred to as ‘legislation’- the act of making laws. These are actions that politicians draft into laws with the intention of controlling the actions of individuals, industries or institutions. This process becomes law when it is enacted, thus permitting the government to use civil and criminal penalties to enforce such injunctions.
Regulations on the other hand are more pointed. The principal distinction between legislation and regulation is that the latter is concerned with a particular sector or problem in a much greater level of detail. Regulations are enforced by entities that are not usually the government, but only if the government has empowered such entities to enforce such regulations.
Comparison Of Crypto Regulation and Bank Regulation:
Fundamentals of Bank Regulation:
Establishing rules that define how banks should operate is known as bank regulation. Regulation’s purpose is to make the system more transparent, more secure, make it more difficult to commit fraud and increase social welfare. European Banking Authority, for instance, operates in 28 different areas including accounting, credit risk, investment, payment services and many others within the scope of the European Union.
Licensing has a significant role in the regulation of banks. In order to carry out business and provide services as bank, such companies need to get a license to practice banking from a government body. This makes it possible for banks to be inspected on a periodic basis for compliance with various statutes and regulatory provisions.
In comparison with cryptocurrencies, for a much longer period, the banking practice has been subject to a lot more regulation. It is true that established regulations already exist, but the degree of sophistication and intensity differs significantly across countries.
Fundamentals of Crypto Regulation:
Cryptocurrencies and the market of digital assets on the one hand came several years ago but did not have any formal regulation frameworks until the recent past. The absence of such regulation is likely to be explained by the original concept of cryptocurrencies which were designed to be decentralized and not controlled by any government agency. Even today, many coin creators believe that such regulations are against the very essence of decentralized currencies.
Nonetheless, after the chaos in 2022, when a number of crypto firms went under due to fraud and poor management, the argument for the control of crypto has increased. Some people within the industry are quite resistant to some form of regulatory intervention but others see such oversight as a stamp of credibility as well as a way to enhance the competition between the established financial institutions and those that are already into crypto especially now that banks are starting to venture into digital assets.
What Crypto Regulations Currently Exist?
Crypto Regulation in Europe
The European Union is focused on the rapid conclusion of the Markets in Crypto Assets Regulation (MiCA), the regulation of the crypto ecosystem. The MiCA regulation which is expected to be passed by the European Parliament during 2023 and to come into law in 2024 is expected to enhance regulatory consistency across EU member countries.
Virtual Asset Service Providers (VASPs)
In Europe, one of the requirements for supply of crypto services is the registration as a Virtual Asset Services Provider (VASP) with local authorities, which registration allows the crypto firm to comply with the Anti laundering and Know Your Customer laws. Registration allows VASPs to promote their services in the state as an important step towards obtaining legal recognition of the regulation.
Nonetheless, VASP registrations may not be transferable from one country to another. Where a company wants to operate, it must be subjected to another inspection and registration procedure, which may be quite time-consuming This is to say that it could take a number of years.
Cryptocurrency Regulation in UK
On February 1, 2023, the British government presented its plans concerning regulation of cryptographic assets. As far as regulation development goes, the UK appears to be behind a number of European nations, but this proposal will seek to place the control of crypto exchanges within adequate regulatory controls. The aim of the government is to ensure both innovation and consumer protection by specifying some basic disclosure requirements for financial crypto trading venues.
Cryptocurrency Regulation in the United States
In the United States, the regulatory environment for digital assets is yet being constructed. March 2022, President Biden signed an executive order, commencing activity on the menaces posed by cryptocurrency. This proposed framework is intended to serve the consumers and investors, maintain the stability of the economy, combat illegal actions and encourage innovations.
Currently, a number of different regulatory bodies are employing existing frameworks for supervision of crypto pursuits. The Financial Crimes Enforcement Network Second, as mentioned above, the other key agency in the regulatory picture is the law and SEC. Most of these institutions and many others consider cryptocurrencies to be merely a new form of investment under its jurisdiction. In light of the FTX exchange’s collapse in late 2022, the SEC’s new policy stated that an effective January, any entity engaged in the business of making, issuing, selling, or offering cryptocurrencies would need to be licensed and include the risk factors in their brochures.
Worldwide Crypto Regulation
With regard to crypto regulation on a worldwide level, there appears to be a striking lack of maturity. Although entire countries like China have banned all use of cryptocurrency, and others such as India have still to develop any regulatory policy, the industry has been more or less left unregulated.
A Look Ahead On the Regulation of Crypto Assets
The next main phase in the timeline of crypto regulation will include expansionary policies such as MiCA in the EU and their respective equivalents in the US and UK legislative warehouses. Working across jurisdictions as well as sharing knowledge will be the key to establishing best practices across the globe. The FSB has gone ahead to show how standardized regulatory oversight of digital assets might look like.
