LONDON/NEW YORK(Thomson Reuters Regulatory Intelligence) – Thomson Reuters Regulatory Intelligence has published a special report(LINK: here) and compendium considering the potential benefits and challenges of cryptos, together with an overview of the regulatory landscape for cryptocurrencies such as bitcoin. The compendium provides valuable information about the legality and tax treatment of, and the evolving regulatory structure for, cryptos on a country-by-country basis for approximately 60 jurisdictions.
Digital transformation and the deployment of crypto-assets have great potential to make payments and transfers more efficient. The speed and reach of transactions, however, together with the potential for anonymous activity and for transactions without financial intermediaries, also make crypto-assets vulnerable to misuse and raise the risk of money laundering.
Financial services firms, regulators and policymakers are all having to come to terms with the rise of a new class of product. The special report examines some of these developments as well as the risks and benefits of this next iteration of digital transformation. It also considers the problems arising from the lack of an internationally consistent definition of the term “crypto”.
It looks at the implications for financial services firms and their customers of the potential for central bank digital currencies and the possible emerging arms race as central banks examine the ramifications of, and seek to deploy, digital currencies. The report takes an in-depth look at the approach to cryptos in China, the UK and the United States.
Cyber risk is a concern for all cryptos, and the report considers how firms, regulators and exchanges can enhance their cyber resilience.
Policymakers, regulators and firms all need to play their part in ensuring that cryptos are as “safe” as possible, not only in terms of investment risk but also with regards to regulatory certainty and cyber resilience.
Supranational policymakers must continue to work toward consistent definitions of what is, and what is not, inside the regulatory perimeter. Cryptos may be treated as a currency, an investment or a security under current regulatory regimes, or they may not be covered at all. Cryptos, bitcoin in particular, may have gone mainstream but if they are to deliver their potential there is a need for clarity about how they are supervised.
A good first step would be alignment on definitions. Even if jurisdictions end up banning some or all cryptos (particularly for retail customers), it would be on the basis that international financial services had a common understanding of what was legal, and where.
“And if things develop as some might believe, tomorrow’s financial system will not be made up of banks, central banks and national currencies but of electronic signals that transfer cryptocurrencies from one digital wallet to another.” Said Ida Wolden Bache, deputy governor of Norges Bank (Central Bank of Norway), in speech entitled “FinTech, BigTech and cryptos — will new technology render banks obsolete?”, May 2021.
Harmonisation or coordination of rules will be essential but may not happen for some years. In the interim, the regulatory landscape for digital assets will evolve, probably more slowly than some desire and likely at a much slower pace than the forms of technology themselves.
It is in everyone’s interest that cryptos are subject to a regulatory regime with a clear perimeter, coherent definitions and an agreed, well-informed stance on risk and risk management.
*To read more by the Thomson Reuters Regulatory Intelligence team click here: bit.ly/TR-RegIntel