Regulation of Cryptocurrency

In this article, we take a look at the current state of cryptocurrency regulations and speak with experts to gain insights into what we can expect in 2024.

As we enter the new year, analysts are predicting an increase in regulatory crackdowns in the crypto space. These regulations will expand to cover risks related to anti-money laundering and counter-terrorist financing, the conduct of companies operating in the crypto industry, and supervisory actions regarding token sales.

In the United States, regulatory actions show no signs of slowing down, and the UK has introduced rules that equate the sale of crypto tokens to that of traditional financial products.

Similarly, the European Union (EU) is set to become the first major global jurisdiction to officially enact a comprehensive set of laws and regulations governing the crypto sector in 2024.

The Markets in Crypto Assets Regulation (MiCA) aims to establish uniform crypto regulation within the EU and provide legal certainty for digital assets beyond the scope of current EU financial services legislation.

Analysts predict that in 2024, the focus areas will go beyond increased regulatory intensity. They anticipate that financial institutions will develop stronger risk management frameworks and enhance their capital and liquidity requirements to reflect the current economic climate.

The growing importance of data and artificial intelligence (AI) in both traditional finance and the crypto sector is also expected to increase the need for data governance and model risk management in global crypto regulation.

Sustainability and environmental, social, and governance (ESG) factors are predicted to hold greater weight in international crypto regulation. Cybersecurity will continue to be a top priority as digital asset platforms remain targeted by hackers and scammers.

Now, let’s take a brief look at the current crypto regulations in different regions and what is expected in 2024.

United States:
Cryptocurrency regulation in the US involves a mix of state and federal oversight. Agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have used existing legal structures to regulate digital asset activity.

In 2023, the SEC and the CFTC initiated over 200 enforcement proceedings against crypto firms. This increased regulatory activity came in response to bankruptcies, scams, fraudulent operations, and illicit fund movements in the sector.

While some players in the crypto space have criticized the SEC’s approach, the agency’s decision to deny Coinbase’s petition for new rules was seen by some as justified in the interest of protecting investors.

In 2024, the US is expected to focus on passing cryptocurrency laws, particularly two bills related to stablecoins and the overall market structure of crypto.

United Kingdom:
In the UK, crypto companies have been required to register with the Financial Conduct Authority (FCA) since 2020 and comply with regulations related to money laundering and terrorist financing.

In 2022, the UK government voted to allow the Treasury to regulate cryptocurrencies as financial instruments under the Financial Services and Markets Act 2000, as part of its strategy to make the country a global hub for crypto technology and investment.

The UK plans to bring various digital assets, including utility tokens and unbacked exchange tokens, under regulation similar to traditional financial assets. The rules governing the advertisement and sale of crypto are also changing to align with other types of financial advertising.

Stablecoins are expected to face increased regulatory scrutiny, with the government planning to make them a recognized form of payment.

Europe:
The implementation of the Markets in Crypto Assets Regulation (MiCA) in July 2023 marked a significant step forward in cryptocurrency legislation in Europe. MiCA aims to synchronize crypto regulation across EU member states and strike a balance between encouraging financial innovation and mitigating risks.

In 2024, crypto asset service providers and issuers operating in the EU will have to adhere to a unified rule book, replacing national frameworks. The European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) are expected to develop regulatory technical standards, implementing technical standards, and guidelines.

Asia:
China has completely banned the use of cryptocurrencies, but several neighboring countries have embraced the industry, focusing on consumer protection and regulatory clarity.

Singapore has announced new rules to protect individual traders, which will come into effect in mid-2024. Hong Kong has taken a more liberal approach, welcoming crypto firms and establishing its own licensing regime. Japan recognizes web3 as a key pillar of its economic roadmap and has specific regulations for different types of crypto assets.

Other Regions:
Many countries worldwide are developing their own cryptocurrency regulations. Some, like the Bahamas, the Cayman Islands, Japan, Mauritius, Singapore, and the United Arab Emirates (UAE), have comprehensive legislation covering licensing, registration, and treatment of stablecoins.

Others, such as Australia and New Zealand, are working on regulatory frameworks specific to the crypto sector. South Africa is studying the experiences of other jurisdictions as it maps out its crypto regulation journey.

In general, the trend globally is to develop tailored regulatory measures for the crypto sector. The expectation for 2024 is that these regulations will continue to evolve, creating a more secure and conducive environment for crypto-related activities.

Looking ahead, experts predict that the implementation of MiCA across the EU will result in uniform anti-money laundering policies. Non-EU countries like the UK, Switzerland, and the US are also likely to align with these standards.

Outside of the EU and the US, countries like Indonesia and India may become more open to cryptocurrencies. These nations could establish frameworks that align with bank policies, shaping domestic and cross-border investments and transactions.

Despite potential challenges, the emergence of central bank digital currencies (CBDCs) will send a strong message of the inevitability and regulatory approval of blockchain technology.

In conclusion, cryptocurrency regulations are evolving worldwide, and 2024 is expected to bring further refinement and enhancement to these regulations. The goal is to foster a more robust and sustainable crypto market where innovation can thrive under the watchful eye of regulatory bodies.