The regulation of cryptocurrencies around the world is a constant struggle for investors in a rapidly expanding and ever-changing ecosystem.
Various regulators around the world look at digital assets in a different light that are significantly different from each other.
Recently, Fabio Panetta, Governor of the European Central Bank (ECB), stated in a written statement before a speech at Columbia University that regulators should follow a global harmonized approach while managing digital assets. He said the world should have digital assets governed by the rules of the Financial Action Task Force (AML) and the Countering of Financing of Terrorism (CFT).
Panetta also spoke of promoting public disclosure, reporting on compliance with the rules in the industry and setting up certain “transparency requirements” and “standards of conduct”. He said:
“We need to make a concerted effort worldwide to bring cryptographic assets into the control area. And we need to make sure that they are in line with the standards that apply to the financial system. We should make faster progress if we want to ensure that cryptocurrencies do not cause illegal risk-taking. “
The feasibility of international regulation in question
The fact that the ECB applies such rules in the European Union is one thing, and having the same rules apply to all countries of the world is quite another because the ECB can act as a supervisor in the EU. However, there is no clear understanding of which supervisory authority would have the power to carry out such coordinated supervisory activities.
Even recently, Ashley Alder, chair of the International Organization of Securities Committees – the Association of Market Supervisors – spoke about this aspect at an online conference hosted by the Official Monetary and Financial Institutions Forum. He explained the need for a joint organization that will be tasked with coordinating the management of digital assets around the world and could even become a reality within this year.
On May 16, the Basel Institute of Governance and the International Academy of Financial Crime Litigators published an article that also called for further concerted action against illegal crypto markets. The paper suggested that researchers involved in cryptocurrencies should invest in learning methods and technologies to keep up with the evolving technology of criminal organizations and entities.
Cointelegraph spoke with Bianca Veleva, Head of Legal and Regulatory Compliance at Nexo – a cryptocurrency lender – about the benefits of an international regulatory approach. She said:
“The adoption of a unified legal framework and / or principles for cryptocurrency-related activities may prove useful in accelerating the legislative efforts of countries that have not yet recognized the benefits of the cryptocurrency industry, following a comprehensive and far-reaching framework. -appearance countries have already adopted and implemented.
As the landscape of digital assets expands and rules become clearer, a new ideology could emerge where international consensus on regulations is merged. Mass adoption and the increasing use of digital assets and blockchain technology will surely lay a solid foundation for consensus among regulators and nations.
However, many countries have outright banned their citizens from giving in to cryptocurrencies and even their services. A good example of this would be China, which announced a total ban on digital assets in September last year. A total of nine countries have banned cryptocurrencies, in addition to China: Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia have a total ban on cryptocurrencies, according to a November 2021 parliamentary library report.
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This difference in the way different countries view digital assets could be the biggest obstacle to a global harmonized regulatory framework. Igneus Terrenus, a policy advocate at Bybit, told the Cointelegraph that while an international oversight system is prudent in monitoring cash flow and reducing oversight arbitration, the reality is that no comprehensive oversight body can impose it on a sovereign state. Realistically, it will have a wider impact on citizens and residents of countries that responded positively rather than countries that choose not to participate.
Terrenus added that “a global framework that fits the world does not seem to be achievable given the differences between countries in even current financial rules. A potential model would focus on facilitating the exchange of information between parties and jurisdictions, which the tax authorities are already doing through the banking system, applying zero-level technology to prevent fraud and improving clarity and regulatory compliance.
Another factor to keep in mind in the hypothesis of internationally accepted rules on cryptocurrencies is that consensus between different countries at different stages of adoption could lead to suffocation innovation and high adoption rates. Veleva replied:
“Any joint effort to merge the current EU cryptocurrency regime with the US legal framework can be a double-edged sword. They can effectively hinder the pace of innovation and adoption of cryptocurrencies at EU level and lead to more regulatory difficulties for cryptocurrencies.
Coordination like never before
Despite the difficulties and challenges involved, some participants in the digital asset ecosystem remain positive about their policy towards internationally harmonized cryptocurrency regulation.
Justin Choo, head of the monitoring group Cabital – a platform for trading cryptocurrencies and passive income – told the Cointelegraph that the current approach taken by countries could not be more diverse compared to traditional asset classes such as equities, bonds and regulated investment schemes.
Compared to crypto-forwarding countries, Choo said, “I would imagine that a global harmonized surveillance system would not go as far as what El Salvador and Argentina are doing simply because the governments of developed countries that have currencies as reserve currencies would “not be willing to give up the economic capabilities – often used to influence global diplomacy – that they already have in favor of cryptocurrencies.
Global co-ordination of cryptocurrencies will require cooperation within industry and from regulators around the world in a way never seen before. Terrenus said:
“Paternalistic protection based on decades-old law may not be the most helpful method. Truly sensible, meaningful and effective rules should encourage transparency when it comes to terms, ownership breakdowns, processing plans and accurate presentation of the annual percentage return on cryptocurrencies. This would improve the overall symmetry of information and reward investors who do their own research.
Especially after the recent much-publicized misunderstanding with Terra blockchain and its stablecoin, TerraUSD (UST), regulators have also begun to look more closely at the feasibility and efficiency of stablecoins. The European Commission has also announced its intentions to impose a general ban on large-scale stablecoins, given the huge economic and investor impact that collapsed UST and Terra (LUNA) in the Terra blockchain.
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As the adoption of digital assets increases, shifting from one adoption and innovation cycle to another, the evolving regulatory framework will be the most important factor in the transition of digital assets through the masses. The global regulatory framework seems to be an ideal solution for the transition, but the obstacles that stand in the way of the implementation of such a framework will make the transition a long process and it is very unlikely that it will happen within a year.
Andreessen Horowitz – a cryptocurrency venture capitalist – recently released his report on the “2022 State of Crypto”, emphasizing that the growth of diversified markets has reached a total value of more than $ 100 billion within two years after the idea was first introduced. introduced. The report estimates that DeFi will be the 31st largest US bank in terms of assets under management.
It is natural that such a rapidly growing industry requires regulators and central banks to innovate and develop at the same pace. Even if a very difficult global harmonized regulatory framework slightly hinders innovation, investor protection is always a major concern for regulators around the world.
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