Navigating crypto regulation and compliance in the USA, Europe, and UK
To help compliance teams understand the current regulatory requirements and how we anticipate these to change with new legislations and shifting appetites for crypto, we have summarized key developments across the globe in our latest report ‘Beyond Borders: Mapping the Global Digital Asset Regulatory Landscape’.
In this blog, the first of a series, we examine the regulatory approaches of the US, Europe, and UK.
The US approach to crypto compliance and regulations
US regulators emphasized stronger risk management and better built and maintained compliance regimes:
On January 10, 2024, the US Securities and Exchange Commission (SEC) announced that some bitcoins were granted the same status as exchange-traded products (ETPs). The landmark approval acknowledged the real-world value of cryptocurrencies and paved the way for integrating more digital assets into the traditional economy. It also emphasized the SEC’s commitment to better regulating the crypto industry, which will impact US regulatory and compliance frameworks in the future.
The 2022 collapse of FTX, then the world’s second-largest crypto exchange, accelerated the US Government’s actions on crypto regulation.
Bluntly confronted by the risks that under-regulated crypto exchanges pose to investors of all types, using (and losing) both DeFi and TradFi funds, and the stability of the entire financial system, members of the Senate and Congress demanded action from law enforcement and regulators in November 2022.
The US Department of Justice subsequently announced its criminal charges against the FTX CEO and others in December 2022, with a Senate hearing into the debacle taking place in the same month.
The FTX case demonstrated how important compliance is to protect both the crypto industry’s longevity and investors’ safety. This will only be achieved by close co-operation between regulating entities and crypto businesses’ compliance teams. Mutual transparency, understanding, and managing reasonable expectations are paramount.
The regulatory and compliance weaknesses that partly contributed to the FTX collapse also highlighted how US regulators and compliance teams are adversely affected by having multiple agencies and statewide, jurisdictional, and federal legal structures, each of which has its own evolving priorities and challenges. These include the so-called ‘securities versus commodities’ debate, although dialogue is encouragingly taking place.
Find out more here.
The EU approach to crypto compliance and regulations
The EU’s MiCA process demonstrates the economic region’s commitment to transparent crypto industry governance, consumer safety, and the stability of the financial system while accommodating regional legislative variations:
The EU approved the Markets in Crypto Assets Regulation (MiCA) in April 2023. The Mica Regulation was published in June 2023, with active crypto asset service providers (CASPs) allowed to continue operating provided they adhere to current national legislations during the implementation phase.
The European Securities and Markets Authority (ESMA) was tasked with overseeing the development of technical standards and guidelines for MiCA, in collaboration with the European Banking Authority (EBA). They are doing so through three consultation packages, the first of which was published in July 2023, the second in October 2023, and the third is tentatively set to be released late in Q1, 2024.
The implementation phase for adoption of MiCA is set to end in December 2024, with a subsequent 18-month transitional period that ends in July 2026. By this time, all entities providing crypto asset services must be wholly compliant with the EU regulations.
Georgia’s approach to crypto compliance and regulations
Georgia’s proactive position on regulatory requirements for the crypto industry should stand it in good stead in the near and far future:
The National Bank of Georgia (NBG) took a brave step forward when it issued its regulation for Virtual Asset Service Providers (VASPs). The regulation strikes the balance between promoting innovation and ensuring safety. VASPs must implement regulations within a year of registering, but by no later than 2024, which demonstrates the EU candidate country’s resolve to be at the cutting edge of crypto.
The UK approach to crypto compliance and regulations
The UK government has demonstrated a generally progressive and inclusive approach to the crypto industry, with an emphasis on collaboration and consultation:
The Financial Conduct Authority (FCA) implemented the Travel Rule, compulsory from September 1, 2023, which balances regulatory compliance with the need to encourage innovation in the crypto industry. The rule adheres to the Financial Action Task Force’s (FATF) Recommendation 16, which requires that VASPs must acquire and retain all identifying details about the originator and beneficiary for virtual asset transfers.
The FCA stance on crypto assets aligns the virtual asset sector’s regulatory requirements with those of traditional financial institutions.
The UK government has also undertaken collaborations such as with the Joint Money Laundering Steering Group (JMLSG) and the upcoming Financial Promotions Regime, which demonstrates its clear commitment to integrating the crypto industry into the existing financial system’s regulatory framework.
The UK government has also shown an appetite for consultation: On October 30, 2023, the UK government published guidance for the FCA and Bank of England on developing a regulatory framework for stablecoins following a consultation on the crypto industry. Also based on the consultation, it published proposals for crypto regulation which included drawing some crypto asset activities into the regulatory fold for the first time.
The next step came on November 6, 2023, when the Bank of England along with other government entities, announced the intention to legislate fiat-backed stablecoins within the broader financial services’ regulatory framework, which was accompanied by a discussion paper.
Crystal’s crypto regulation and compliance predictions
Regulators have a tough job finding a balance between encouraging innovation in and managing the risks associated with virtual assets. At Crystal, we believe that all industry role-players need to co-operate and collaborate so that the future is inclusive, safe, and successful.
Keep an eye out for our next blog, where we examine crypto regulation regimes in the APAC region and the UAE or download the full report here.
