Authorities are rushing to keep up with bitcoin — here’s a rundown of who’s regulating crypto and where

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The UK government has announced its intentions to become a “global hub for cryptoasset technology and investment”.

The heads of both the Bank of England and the US Federal Reserve have urged new laws as both retail and institutional interest in the new asset class grows.

Amid claims that crypto is fast becoming a ‘Wild West’ that needs to be tamed, global governments are regulating the space in order to both protect investors and also ensure financial stability.

According to a report by Morningstar, crypto has shown no signs of behaving like a traditional asset during its short trading history. Its 5 April report found that “thus far, cryptocurrencies demonstrate virtually zero sensitivity to established risk factors such as size, valuation, or term and credit premiums”.

However, bitcoin and the S&P 500 Index have never been so in-step. The S&P 500 and bitcoin have moved in the same direction in 77% of trading days this year, the highest correlation since data started in 2010, eToro found, citing Bloomberg data.

Here’s a roundup of which governments are doing what:

United Kingdom

On 4 April, the government announced its initial plan on regulating the crypto space with the goal of being a global hub for cryptoassets. Though no concrete measures have been implemented, the announcement set an objective that stablecoins — cryptoassets pegged to fiat currency — would be brought into the regulatory perimeter as a registered payment method. It also included future legislation that would be introduced to enable a “financial market infrastructure sandbox”, where firms can experiment and innovate on distributed ledger technology.

In a 4 April speech, City minister John Glenn said: “Having robust and effective regulation won’t hinder innovation, it’ll actually boost it — by giving people and businesses the confidence they need to think and invest for the long-term. ”

The market remains largely unregulated, but efforts have been made to regulate firms based on existing regulatory powers. Cryptoasset businesses that begin trading in the UK must register with the Financial Conduct Authority, according to a new rule that took effect on 1 April. Concerns that large firms such as Revolut and Blockchain.com would be forced to suspend digital asset operations caused the FCA to make a last-minute decision to place 12 firms on a temporary registration list.

In an effort to protect retail investors, the FCA in October 2020 also banned trading in crypto derivatives for the general public.

United States

Like the UK, there is no national regulation for cryptoassets in the US but the federal government has taken note of the asset class. In March, President Joe Biden signed an executive order to study the benefits and risks of digital assets. Both the heads of the Securities Exchange Commission and the Commodity Futures Trading Commission — the two agencies most likely to gain oversight — have commented on the need to regulate digital assets.

SEC chair Gary Gensler said on 4 April: “These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way.”

Rostin Behnam, CFTC chair also advocated bringing cryptoassets into the regulatory perimeter. He said on 9 February: “In order to reach the lofty goals that many of the technology’s most ardent proponents advocate, it is important that we find ways to sensibly bring this emerging market within the regulatory fold.”

Absent federal legislation, cryptoasset firms have been registered under state regulatory bodies. For example, Coinbase is regulated as a money transmitter by the New York State Department of Financial Services. The New York Times has reported that the crypto industry has helped to write and pass legislation for the asset class at a state level.

European Union

The EU is in the midst of working through its Markets in Crypto-Assets regulation. The commission is also looking to clarify that financial instruments based on distributed ledger technology would fall under the sweeping set of European laws known as MiFID II.

Some smaller jurisdictions in the EU such as Gibraltar and Luxembourg have moved quickly to embrace cryptoassets and to bring them into the regulatory perimeter, leading to many crypto exchanges setting up shop in the two areas.

One of MiCA’s goals would help bring uniformity to European crypto regulation, giving power to national authorities along with European Securities and Markets Authority and European Banking Authority to set up a pan-European register of crypto service providers. The EU Commission said the proposed legislation is “consistent with the Union policies aimed at creating a Capital Markets Union”.

Asia

While many countries have sought to incorporate crypto into existing regulatory frameworks, China has taken the opposite approach. Since 2019, trading in cryptoassets has been banned. The Chinese government furthered their crackdown in September 2021 when all crypto transactions in the world’s second-largest economy were made illegal.

In Japan, cryptoassets are regulated under the Financial Services Agency and exchanges must register with the regulator. The Japanese government is looking to strengthen regulation to improve know-your-customer and anti-money laundering compliance.

Likewise, South Korea’s crypto regulation is in a similar situation, where exchanges must register with the Korean Financial Supervisory Service. However, crypto regulation in Korea is already more stringent, where trading can only occur using a “real-name bank account”.

In south-east Asia, the Monetary Authority of Singapore has been discouraging the use of cryptoassets and has issued guidance stating crypto service providers should not promote their services to the general public.

To contact the author of this story with feedback or news, email Jeremy Chan

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