Researchers at Cambridge University Business Schools recently published a very detailed and thorough report on cryptocurrency regulation. The key conclusion of the report is the lack of a coordinated approach of global regulators. In particular, this concerns the terminology used and the classification of digital assets. Researchers concluded the most extensive study (as for today) of 23 jurisdictions, including the United States, Japan, the EU countries and Russia. Its goal is to provide a practical and analytical tool for regulators, market participants and other stakeholders in the ecosystem of cryptoassets.
- The lack of standard terminology for cryptoassets between regulators and jurisdictions makes coordinated actions at the global level difficult.
- The most complex regulatory frameworks are tend to exist in the countries with a less strict attitude to financial regulation and a low level of activity in the field of cryptocurrencies. At the same time, the authorities of 47% of jurisdictions with a high level of domestic cryptocurrency activity took the path of amending existing regulations in order to bring cryptoassets into the scope of existing laws.
- In most jurisdictions regulators distinguish cryptoassets with security properties and other cryptoassets. Security-like cryptoassets and all related activities are automatically subject to the laws on securities.
- Regulators tend to focus on initial coin offerings (ICOs), security token offerings (STOs) and trading, that is, those activities that remind them of well-understood traditional financial markets. At the same time, they almost completely disregarded other key activities, such as alternative token distribution mechanisms (airdrops and hard forks) and the creation of cryptoassets through mining. This can have a significant impact depending on how the cryptoassets market will develop.
Researchers also demonstrate that conflicting approaches are often used by different state bodies in the same jurisdiction. In average, there are 3 different state bodies in each jurisdiction which issued official statements, including warnings.
Central banks are often the first to issue guidelines for controlling the issuance, distribution, sale and use of digital assets. However, in many cases, the initial statements of central banks are only warnings about the risks associated with cryptocurrencies.
Ministries of finance and tax authorities, as well as other government departments, including authorized oversight bodies for specific sectors of the financial sector, such as the US Securities and Exchange Commission (SEC), often follow central banks with their statements.
Recommendations to regulators
The report’s authors point out that most regulators have focused on setting guidelines for cryptocurrency exchanges and initial coin offers (ICOs, STOs). All studied jurisdictions have introduced requirements for KYC and AML procedures for at least one service provider (trading platforms, purse providers, etc.). At the same time, regulators have practically ignored alternative mechanisms for the distribution of tokens, such as airdrops and hard forks. In this regard, the researchers believe that before adopting any further legal rules, regulators should consider the possibility of finalizing and amending already existing rules.
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