Cryptocurrencies are spreading worldwide with 10,043 tradeable cryptocurrencies as of July 2022. As crypto continues to evolve, so does the regulatory landscape. While more regulation could help stabilize a notoriously volatile crypto market, some believe new regulation would hinder innovation.
To learn more about some of the most pressing issues regarding crypto regulation, we turned to Andrea Blinkhorn, head of Public Policy (Americas) and Anatole Baboukhian, head of Crypto and Web3 Public Policy (Global), both from the FIS Government Relations team. Here are their answers to our questions.
Question #1: Does a global regulatory framework exist for crypto and digital assets?
Andrea: Only partially because the existing framework today is fragmented. There are some rules that apply to some aspects of crypto and digital assets, but they are not harmonized across the different US states. There are also aspects that are not currently regulated.
Part of the challenge is that “crypto” means many things, as the underlying technology can serve a wide range of different use cases. So, there can’t be a one-size-fits-all regulatory framework for all types of crypto and digital assets.
The industry is still very new, and we are seeing a lot of experimentation as the technologies evolve. A key challenge for policymakers is to learn more about crypto technology and its real-world applications. Improving this understanding will enable them to develop regulations that are future-proof and appropriate to the different crypto use cases.
Question #2: Why is there a push for consistent regulation in this space?
Andrea: There is a perception from some policymakers and financial institutions that crypto is a scam and used by criminals to bypass controls and sanctions in the traditional financial and payment systems. To prevent this, regulation of the sector is perceived a key priority to stop illegal activities using cryptocurrencies.
Beyond this very defensive narrative towards crypto, the industry broadly urges policymakers to clarify the applicable regulatory framework. Putting parameters in place that offer consumers some protection of their financial investments would help legitimize the industry further and foster confidence in the offerings. Regulations provide a safer and more secure environment for consumers and businesses, which in turn can drive further adoption.
The key challenge for policymakers is to provide clear guidance that would provide the necessary guardrails without hampering innovation. The crypto industry is pushing for regulatory clarity as much as financial institutions want to know how and where crypto fits into traditional offerings. Without clarity, there could be a sense of hesitation about going down that road, eventually impacting adoption. Regulatory clarity will give companies the confidence and space to explore and offer consumers further safety and security.
Question #3: What challenges do regulatory agencies face?
Anatole: The industry is moving very fast, so it is challenging to develop regulations that can keep pace with all the latest developments in the space. The regulatory framework for crypto must be technology-neutral and primarily focus on use cases with future-proof and proportionate rules. As such, this framework will consistently offer the necessary guardrails for users and the right space for innovation without being quickly outpaced by fast technology developments.
One of the overarching questions is whether the existing regulatory framework is appropriate to regulate crypto use cases or if there is a need for an entirely new framework. For example, can tradeable cryptoassets fit in the commodity category or the security category (as currently discussed in the US), or should they be regulated as new types of assets (as currently discussed in the EU)?
Question #4: What are the key topics that crypto regulators are focused on today?
Andrea: The key priorities for policymakers and regulators are:
- Regulatory oversight and definitional issues
- Consumer and investor protection
- Illicit finance
- Financial stability
- Stablecoin issuance and reserve requirements
- Tax reporting and defining transaction thresholds
- International cooperation
Question #5: What are the crypto policy goals for both, the financial services and crypto industries?
Andrea: The financial services industry is looking closely at what it means to operate in a decentralized world when regulations and the traditional financial and payment systems have been built around centralized models. As explained earlier, regulatory clarity is critical for the industry. Instances of “regulation by enforcement,” as we’ve seen recently with the SEC for example, is not providing a clear and reliable environment for both the crypto industry and the financial services industry to operate in this space.
Key priorities for the two industries are:
- Reducing fragmentation in the regulatory environment
- Encouraging consistent implementation of AML standards
- Promoting responsible innovation
Question #6: What are the main things to know about the future of crypto regulations?
Anatole: It is key for the industry to educate policymakers and explain how digital assets are here to stay. There’s more work to be done to explain the use cases and the opportunities that a decentralized technology can provide to existing problems. As we move forward, we’ll see a convergence between traditional financial institutions and the crypto industry to integrate decentralized features to existing infrastructures, for example, with stablecoin settlements and DeFi products increasingly offered by traditional players. To facilitate this convergence, the applicable regulatory framework must be clear and adapted.
Anatole: Another thing to note, as each jurisdiction is working towards regulatory clarity at domestic level for crypto today, the key future challenge for regulators will be with international cooperation to make sure applicable rules are fairly harmonized and enforceable across different jurisdictions.
Question #7: How can companies stay abreast of crypto regulations as the market evolves?
Anatole: It’s very important to stay informed, learn more about the underlying technology and its use cases and take part in educational initiatives for policymakers and traditional players. It’s crucial for businesses entering the crypto space to adopt an open-minded and proactive approach with regulators. To do this, the first step is to understand how their business is regulated and what value they want to bring to the market.
Partnering with a leader in payments like Worldpay from FIS® is crucial. Worldpay is helping pave the way for crypto by helping merchants comply with the evolving regulatory crypto landscape. In partnership with Shyft Network, Worldpay utilizes Shyft’s Veriscope solution to meet multi-jurisdictional requirements set out by the FATF (Financial Action Task Force) Travel Rule, which targets the anonymity of cryptocurrency transfers and aims to fight money laundering and other financial crime in the cryptocurrency ecosystem.