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Although regulatory responses around the world vary greatly, Switzerland stands out as the country that has struck the right balance when it comes to regulation. By contrast, the United States has emerged as the most aggressive cop on the beat.
As the adoption of cryptocurrencies has skyrocketed in recent years, regulators are increasingly looking at the fast-evolving crypto space. But their responses around the world vary greatly.
Last June, El Salvador decided to fully embrace Bitcoin and made the cryptocurrency a legitimate means of payment in the country. By contrast, a few months later, China banned all activity related to cryptocurrencies within its borders.
“On a spectrum from everything [related to crypto] is illegal to it is legal tender, there is any number of variations in there,” Katie Fry-Paul, an associate at Taylor Wessing, explained at a FinCrime event on Wednesday (January 26).
There are certainly significant efforts being made by the EU and the UK as well to create a coherent framework for the regulation of crypto-assets and the protection of consumers and investors.
However, looking at regulation as a structure that strikes the right balance between meaningful regulation and enabling innovation, Switzerland stands out as being furthest ahead in regulating crypto, David Carlisle, director of policy and regulatory affairs at Elliptic, said.
“Switzerland has done a really good job in setting out a meaningful regulatory framework that addresses issues like the travel rule or meaningful registration, while there is a lot of room for businesses to innovate as long as they are doing it in a responsible way,” Carlisle explained.
Switzerland’s legal framework has been praised internationally for its allowance of cryptocurrencies and blockchain technology to flourish, with the Swiss Financial Market Supervisory Authority (FINMA) having published guidance on the use of initial coin offerings (ICO) as early as 2018.
The country has been keen to establish itself as a global leader in this field. In September 2020, Switzerland passed the Distributed Ledger Technology (DLT) Blanket Act, which selectively adapts ten existing federal laws.
The last provisions of the law came into force last August, which included a licence for DLT trading facilities, such as financial market infrastructures for DLT securities that can admit other companies and persons to trading in addition to financial intermediaries.
Shoot now, ask questions later
Although speakers at the FinCrime event were full of praise for the balanced efforts to regulate crypto by Swiss authorities, they contrasted this with the much more aggressive policing role adopted by the United States.
According to analytics firm Elliptic, the country’s financial regulators have imposed $2.5bn in fines on firms and individuals dealing in crypto since Bitcoin was launched in 2009.
In a very complex regulatory landscape, there are numerous US federal agencies that have the authority to enforce their rules against various aspects of the product. Hence, federal regulators have increasingly stepped forward in the past years, stretching their regulatory reach to this innovative product.
Among all these agencies, the Securities and Exchange Commission (SEC) has come out as the most fierce regulator of the crypto industry, partly because of the sheer number of cases it initiated against crypto companies, but also due to a controversial lawsuit against Ripple.
However, as crypto is becoming more mainstream and more interconnected with the traditional financial system, other agencies, such as the Commodity Futures Trading Commission (CFTC), the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), have also taken steps to make sure crypto is not used to launder money or evade sanctions regulations.
As 2022 unfolds, experts predict increased enforcement activity in the crypto space, but this time not only from the side of well-established federal financial regulators but also from younger agencies that are tasked with protecting consumers.
