A study by the Cambridge Centre for Alternative Finance (CCAF) to assess the global cryptocurrency regulatory landscape identified a lack of crypto terminology standards as a major factor in regulation delays for most jurisdictions.
The report was compiled by CCAF with the support of Nomura Research Institute (NRI) and is recognized as the first global comparative study of crypto asset regulations across 23 jurisdictions that could become an “important practical and analytic tool for regulators, market participants and other stakeholders in this emerging sector”, according to Cryptocurrency and Blockchain Lead at CCAF, Michel Rauchs.
Since the cryptocurrency movement started in 2009, alongside several industry anomalies, many financial regulators have been watching the space in order to provide an ambient regulatory framework that promotes technological innovation while keeping the integrity of established laws. However, according to the report, one of the major impediments to drawing up a robust regulation is “the lack of standard terminology for crypto assets across regulators and jurisdictions”, which consequently slows down a coordinated global regulatory response.
As part of the main contentions, the term “cryptoasset” has no clear definition, since all assets developed on the blockchain or distributed ledger technology all assume the name before classification, as the report summarily finds:
“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.”
Moreover, the focus on classification of the emerging assets into functions such as securities and utilities while all lumped up as cryptoassets, as well as regulatory oversight with respect to initial coin offerings (ICOs), and the monitoring of exchange activities have left regulators blindsided to other crypto-related activities such as airdrop, fork, and mining – other terminologies which have not been clearly defined in relation to asset functions and creation. However, the report argues:
“A legal and regulatory classification of a cryptoasset should be based on an in-depth assessment of several factors (e.g. rights attached, access, economic function of the token), generally conducted on a case-by-case basis.”
The report further indicated that the most sophisticated regulatory frameworks are found in countries with a less rigid attitude towards financial regulation and a low level of domestic crypto asset activity, while in contrast, those with high levels of crypto-related activities have had to retrofit existing laws with concurrent changes in the fintech space.
Divergent views on cryptocurrency regulations have had a huge impact on the adoption potential of cryptocurrency as a new instrument of finance – both as store and exchange of value. For some jurisdictions, an outright ban on crypto-related activities seems most effective to minimize any impact a decentralized currency may have on their economy, while others have adopted a rather stringent approach – which has been perceived by crypto apologetics as stifling to innovation.
On the bright side, jurisdictions far along in the regulatory landscaping like the French have offered their experience as the right model for other European countries to adopt. Meanwhile, in the US, the Securities and Exchange Commission (SEC) in collaboration with the Financial Industry Regulatory Authority (FINRA) plans to discuss the current market and regulatory risks in the upcoming National Compliance Outreach Program for Broker-Dealers.
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