What is the top regulatory concern in the crypto industry?

By Puja Sharma

Inconsistent and unaligned cross-border regulatory guidance is the top regulatory concern for the crypto and digital asset industry identified by a survey of members for Global Digital Finance’s 2021 compendium review of the global crypto and digital assets sector.

The annual report from the leading industry body championing the adoption of digital finance, digital money, and next-gen market infrastructure Macro and Regulatory Headwinds Prevail found 45% of members chose inconsistent or unaligned cross-border regulatory guidance with 42% highlighting a lack of clarity on regulatory perimeter and 33% Travel Rule compliance as their top regulatory concerns for 2022.

62% of those questioned chose the US as their priority jurisdiction followed by 58% selecting the European Union and the UK with Singapore following closely behind.

• Inconsistent cross-border guidance and a lack of clarity on the regulatory perimeter are major concerns
• Global Digital Finance’s 2021 annual compendium review highlights the US, EU, and the UK as the priority jurisdictions

Survey results showed conduct regulators in GDF’s Regulator Only Forum, a forum of over 25 jurisdictional regulators, chose stablecoins, DeFi, and data reporting as their priority areas for 2022 compared with the wider GDF Membership who prioritized DeFi, digital custody, KYC/AML, and crypto and digital asset derivatives as their top focus.

GDF’s yearly compendium review of the crypto and digital assets industry includes contributions from industry leaders, financial institutions, regulators, and policymakers on the extraordinary growth in the digital asset sector throughout the past year.

Lawrence Wintermeyer, Executive Co-chair of Global Digital Finance, said: “In a sustained period of global regulatory uncertainly with crypto and digital assets, GDF members have demonstrated to customers, stakeholders, industry, and regulators that they can abide by high conduct standards through the GDF Code and further collaborate on cross-industry issues like meeting FATF travel requirements, AML/KYC/CFT best practices, and shared market surveillance.

“GDF looks forward to greater dialogue and commitment with policymakers, agencies, and regulators in our co-regulatory model as the crypto and digital asset sector matures and continues to demonstrate its financial and social utility. Meaningful compliance is the result of committed industry engagement with regulators on the evolving challenges, together with innovative approaches to regulation that meet the demands of new technologies,” he added.

From the GDF working groups, including Shared Market Surveillance and how the global industry in self-establishing a transparent market surveillance reporting regime; V2 of the Stablecoin Code of Conduct focused on ‘algorithmic’-backed stablecoins; Private Markets Digitisation, the new decentralized network for private markets primary and secondary issuance, and; the new Global Financial Institutions Cryptoasset working group focusing on institutional standards for brokerage, custody, and settlement of crypto assets.

Coinbase‘s Chief Legal Officer Paul Grewal wrote in the report: “Policymakers are right to press pause and take stock. Given the complex and evolving nature of the market, industry engagement is key. Market players can provide insight into the specific (regulatory) concerns and how these could be addressed.”

Regulatory clarity and greater certainty for the crypto and digital asset industry took many positive steps forward in 2021.

“Through the GDF Regulator Only Forum and our Regulator’s DeFi Knowledge Series, we are enabling the cross-border, cross-industry dialogue needed to promote sound policies for the global sector. As we progress, industry engagement with regulators is key to balancing consumer protection and innovation,” Jeff Bandman, GDF Board Member and Former LabCFTC Head, said.

With contributions to the annual review from leading policymakers and regulators including the US Securities and Exchange Commission, the European Parliament, the Financial Action Task Force, the Financial Stability Board, and the International Monetary Fund on their approaches to promoting innovation and regulating crypto and digital assets, GDF underlines the importance of industry and regulators working together to collaborate on the development of policies and regulation in a global co-regulation model.

“The GDF annual review demonstrates that we need an enabling environment that harvests the opportunities and mitigates the risks of crypto and digital assets. Innovation will depend on whether a jurisdiction’s environment creates barriers or opportunities and encourages engagement through the use of regulatory tools such as sandboxes and safe harbours. GDF’s co-regulatory approach will be more important than ever in the year ahead in terms of advocacy, standard-setting, and education on behalf of its members.” Greg Medcraft, GDF Board Member, Former OECD Director, and IOSCO Chair, said.