What’s next for Crypto Regulation?
What’s next for Crypto Regulation?
03/16/22 10:02 AM
Over the course of the past 12 months, public interest in cryptocurrencies has continued to skyrocket. According to a study published by the Financial Conduct Authority (FCA), public awareness and estimated ownership of digital currencies in the UK was up to around 2.3 million in 2021, an increase from around 1.9 million from the previous year – and 78% of adults in the UK have now heard of cryptocurrencies.
Despite these encouraging figures on the level of interest, the level of understanding of cryptocurrencies do not necessarily correlate, meaning that an increasing proportion of crypto investors may not fully understand what they are buying into. On 18th January the UK Treasury stated that the UK’s financial regulator will start overseeing crypto ads, until now outside the Financial Conduct Authority’s promotions regime.
The challenge for regulators will be to crackdown on scams and the use of crypto platforms to commit financial crime, whilst recognising the opportunities afforded by blockchain technology and encouraging the extraordinary innovation being conducted in this space across the global financial sector, including by central banks.
If effectively implemented and appropriately regulated, this technology has the potential to empower individuals with greater financial freedom, act as a hedge against creeping inflation, and provide individuals with digital property rights. Financial freedom means the ability to act in accordance with one’s financial preferences, with the remit of the law, and without the need for to permission from or payment to a third party. Crucially, crypto is not a replacement for the fiat system, but a complement to it.
Central to the success of digital assets and blockchain will be robust regulations that crack down on illicit activities, from scams and theft to money laundering and sanctions evasion. In turn, greater oversight and an appropriately regulated crypto sphere will help provide confidence to consumers looking to engage with cryptocurrencies and the opportunities they offer.
As such, governments and regulators must work with industry experts, including crypto companies and trade associations, to collaboratively design regulations that accelerate innovation while tackling economic crime and boosting consumer protection. Open dialogue between the crypto sphere and politicians in particular will be fundamental in ensuring fair, transparent, and effective regulations can be introduced to support the expansion of the industry.
The FCA recently published a consultation outlining plans to toughen up existing rules on advertising high risk investments, including crypto, to protect customers. Some countries have already recognised the importance of this. In the UK, the All-Party Parliamentary Group (APPG) on Crypto and Digital Assets, established on 29 December 2021, provides a forum for parliamentarians to discuss the challenges and opportunities relating to the growth and competitiveness of the crypto sector and to explore the need for future regulation.
This follows the establishment of the UK’s Cryptoassets Taskforce which was announced in March 2018 by the Chancellor of the Exchequer, as part of the government’s FinTech Sector Strategy. The Taskforce published a report emphasising the importance of maintaining the UK’s international reputation as a safe and transparent place to do business in the financial services sector, as well as ensuring high regulatory standards and protecting consumers by responding to the risks of cryptoassets with sufficient regulations.
Trade associations like CryptoUK are also helping to promote higher standards of conduct in the industry as well as educating stakeholders about the opportunities that crypto holds. Blockchain for Europe and the Blockchain Association are highly active in advocating the benefits of blockchain and crypto in the EU and the US respectively. These organisations have their finger on the pulse of the industry while effectively advocating on behalf of crypto to policymakers.
However, given the international nature of crypto and blockchain, there must be greater cross-border collaboration to address technological and regulatory issues. The IMF notes that as countries are taking very different strategies to address these challenges, existing national laws and regulations may not be sufficient to comprehensively cover such concerns.
I am passionate that crypto can create a world where people have greater control over their money, data and destinies; where the individual is empowered with financial freedom, which might also be called financial liberty. While greater regulation of the crypto sphere and education of relevant stakeholders will be important for its future success, it will also be necessary to strike a balance between the promise of financial liberty and social and economy security.
Fair restrictions, based on consultations with industry leaders and using high-tech technology, can help to build a better international regulatory system for crypto and accelerate its growth. I believe that technology with such potential should be made more accessible for consumers to democratise finance.
Cryptocurrencies can provide opportunities for financial inclusion for the billions of people who remain unbanked across the globe, a cause worth fighting for. One of the ultimate goals of crypto should be to make the ownership and trading of digital assets less costly, simpler and more intuitive for all.
We know that crypto is here to stay. Looking ahead, regulatory oversight and education will be critical to the success of expanding the use of digital assets among the wider public. However, such measures must be established by policymakers who work with industry experts. This will ensure that regulations are fair and effective. If effectively regulated, crypto will continue to revolutionise the financial sector. In the long-term, what is at stake is nothing less than the prospect of financial freedom for all.