A report compiled by researchers at Judge Business School, University of Cambridge is providing insight into the global regulatory climate as it pertains to digital assets. The paper finds that a lack of standardized terminology is one of the main impediments to a consistent regulatory response across the world.
The First Global Comparative Study
The report was compiled by a faculty within the Judge Business School called the Cambridge Centre for Alternative Finance in conjunction with the Nomura Research Institute based in Japan. Over twenty researchers contributed to the paper, providing in-depth analysis of 23 legal jurisdictions across the world.
The report, called the Global Cryptoasset Regulatory Landscape Study, is designed to provide insight into how regulators are approaching the digital asset sector, with the aim of contributing high-quality data on the gaps that exist across the world. The paper also hopes to help regulatory bodies better their approach especially as it pertains to the rest of the world.
The paper is the first of its kind, in terms of the global scope of the study, as well as the in-depth nature of the research that went into it.
The head of the Cryptocurrency and Blockchain Department at the Cambridge Centre for Alternative Finance, Michel Rauchs, believes the paper is an asset for the cryptoasset sector as a whole.
“This first comparative global report on crypto asset and blockchain regulation is an important practical and analytic tool for regulators, market participants and other stakeholders in this emerging sector.”
The paper focused on 23 jurisdictions including Abu Dhabi, Australia, Bermuda, Canada, China, the European Union, Estonia, France, Germany, Gibraltar, Hong Kong, India, Israel, Japan, Malta, Mexico, Russia, Singapore, South Korea, Switzerland, Thailand, the United Kingdom (UK), and the United States of America (USA).
The researchers selected these nations because of their significance to the cryptocurrency sector in terms of activity and adoption.
Research indicates that when it comes to providing legal direction with regard to the digital asset industry, different regulatory parties in the same legal jurisdiction will publish guidelines designed to regulate the sector. This results in an often confusing regulatory overlap. The paper states:
“Our research shows that, on average, three distinct national bodies per jurisdiction have issued official statements on cryptoassets, including warnings.”
Despite this, the paper found that central banks are often the regulatory authority that first releases guidelines designed to control the issuance, distribution, sale, and use of digital assets. However, many central banks were found to issue warnings in their initial statements regarding the sector.
Government departments, such as finance ministries, generally followed with statements regarding the sector. Finally, other supervisory parties with a legal mandate over some aspect of the financial sector also issued guidelines. Examples of parties like these include the SEC in the United States, which has recently published a framework for the legal status of digital assets.
One of the most important findings uncovered by the research is the fact that the lack of standardized terminology to define or describe digital assets poses a significant challenge to regulatory bodies. This is true of regulatory parties within the same legal jurisdiction as well as across the globe.
As the blockchain sector is still in its infancy where growth is fast, regulators typically find themselves unable to keep up with the rapidly changing sector. Therefore, authorities will generally use blanket terms when issuing regulatory guidelines. Unfortunately, the terminology is generally unsuitable for a number of reasons.
“There is no standard usage of terminology across regulators and a variety of terms have been used to refer to cryptoassets in official statements. Notably, the term virtual currency has been used most frequently in official documents, although it has often been used interchangeably with cryptocurrency and digital currency,” the authors wrote.
This poses a problem because different parties within the same legal jurisdiction may issue guidelines using the same terms but defined differently. As a result, navigating the legal waters prove to be complex.
Distinguishing Digital Assets
The paper found that in most legal jurisdictions, steps have been taken to legally distinguish digital assets. Regulators would typically approach their task by first determining which digital assets fit into the definition of securities as defined by their law.
Due to the classification of some digital assets as securities, there have also emerged utility tokens and payment tokens in most legal restrictions. In some jurisdictions, the paper noted, provisions have been made for a fourth category of digital asset, called hybrid tokens, which manifest the characteristics of other types of digital tokens.
Interestingly, the paper found that most jurisdictions with a large number of people using digital assets within its boundaries were more likely to amend their existing laws to include digital assets as opposed to creating new and more specific regulatory frameworks. Smaller nations are more likely to create bespoke regulatory frameworks for the digital asset sector.
Lastly, most regulators have focused on imposing guidelines over cryptocurrency exchanges and initial coin offerings (ICOs). All of the jurisdictions studied in the paper imposed KYC and AML requirements on at least one tertiary service provider, like exchanges or wallets within the digital asset space.
The researchers recommend that regulators consider tweaking and amending existing regulations prior to enacting any further decrees. Apolline Blandin, a CCAF Research Assistant on Cryptoasset and Blockchain Technology hopes the report helps regulators streamline their response to the sector.
“By conceptualizing the key dimensions of cryptoassets and their regulation, the report can help develop a more consistent approach across regulators.”