The growing need for crypto regulatory frameworks

• The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada partnered to form a crypto regulatory framework best suited for their ecosystems.
• Under their Payment Service Act, Japan has added a crypto regulatory framework, officially recognizing digital assets as legal property.
• Taiwan’s regulatory body has officially announced an upcoming crypto regulatory framework.

The crypto industry is among the fastest-growing and lucrative industries, with a valuation of $1.14 trillion. Since 2009, Bitcoin completely redefined how the world views financial systems. Its decentralized nature, accompanied by its fast and reliable transactions, inspired many developers to duplicate its revolutionary concept. Soon, the industry went from one crypto coin to thousands over the years. This new trend would later trickle down to developing other industries and improving existing ones. Its benefits are clearly defined, but, the industry has faced numerous hurdles. Among its crucial drawbacks is the lack of clearly defined crypto laws. For years, regulatory bodies have pondered which of the best crypto regulatory frameworks would benefit both users and the country. 

Fortunately, with the increased adoption of crypto payment services, several industries have gradually embraced the need for crypto laws. Taiwan has officially announced its intent to launch its crypto regulatory framework. 

The era of the crypto regulatory frameworks

Initially, Nakamoto developed Bitcoin to create a financial system that gave the user full control. From its decentralized nature and automated smart contracts, the crypto industry is a self-sufficient franchise that continues to grow with demand. His efforts and vision would lead to the development of stablecoins, the fintech industry, and decentralized applications.

His dream would lead to one of the most significant technological evolutions, ushering in an entirely new industrial revolution. Despite this, his vision continued to grow, but problems soon arose. The nature of the crypto industry proved too effective, resulting in illegal activities like scams and hacks. Despite retaining its trillion-dollar value, it has lost billions due to rug pulls and crypto scams.

Also, Read Binance won a court case against the US SEC’s demand to shut down operations.

This trend soon caught the eye of every regulatory body. The illegal activities the crypto industry induces proved too much to be left alone, and thus, the need for crypto laws soon rose. Unfortunately, this became a heated debate within the industry.

As mentioned, the crypto industry forgoes normal standards, and thus, standard laws cannot apply to them. In addition, the high valuation of single coins became a threat to many fiat currencies. This reason soon deterred many regulatory bodies from diving into the need for crypto laws, resulting in the automatic ban of digital assets in several countries. 

Fortunately, several ecosystems have taken the time and effort to ensure establish crypto regulatory frameworks that specifically deal with their ecosystem.

Existing Crypto laws

Crypto regulatory frameworks vary between countries. Different ecosystems are affected differently depending on the amount of exposure to digital assets, the technology available, and the value of their fiat currencies. For instance, Canada became the first country to approve a Bitcoin Exchange Trade Fund, with several trading on the Toronto Stock Exchange.

The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada partnered to form a crypto regulatory framework best suited for their ecosystems. According to Canada’s crypto laws, all crypto trading platforms and dealers must adhere to the criteria before operating within their soil.

In addition, it also classifies all crypto investment firms as money services businesses(MSBs). This approach mandates all crypto-based firms to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Ultimately, Canada became one of the few countries to treat cryptocurrency like other commodities, inspiring many regulatory bodies to do the same.

Soon after, the U.K. implemented a similar strategy. According to their crypto laws, each crypto-based firm must first register with their regulatory body, the Financial Conduct Authority. It, however, varies a bit, In Canada, the UK has banned the trading of crypto derivatives.

Also, Read Recurrent mistakes made by over 2350 dead crypto coins since 2013.

In addition, they must adhere to your client standards, anti-money laundering rights, and combating the financing of terrorism(CFT). They mainly based their approach on the several illegal activities the crypto industry can accommodate. The UK crypto regulatory framework also successfully established a tax system allowing the government to benefit from their crypto industry.

Among the various regulatory bodies adopting crypto laws, Japan is one of the most progressive. Under their Payment Service Act, Japan has added a crypto regulatory framework, officially recognizing digital assets as legal property. All exchanges operating within their crypto ecosystem must register with the Financial Services Agency.

In doing so, they will comply with AML/CFT obligations, propelling their industry significantly. In 2020, their government established the Japanese Virtual Currency Exchange Association (JVCEA). The JVCEA is a crypto regulation framework that enables Japan to tread trading gains from crypto as miscellaneous income and tax investors accordingly. 

These three regions have set positive approaches when establishing crypto laws. Unfortunately, the diverse nature of the crypto industry does not allow every crypto regulatory framework to work effectively. For instance, the US regulatory body developed crypto laws, but its dynamic crypto industry has made many crypto laws obsolete.

In the recent FTX case with Sam Bankman, its undefined crypto laws could not shackle its firmer CEO to his crimes. Furthermore, their recent crypto lawsuits have significantly damaged their ecosystems, causing many to withdraw.

Taiwan takes a step to establish crypto regulator frameworks

In recent developments, Taiwan’s crypto industry has received major news. Its regulatory body has officially announced an upcoming crypto regulatory framework. The first draft will be pushed out by the end of November 2023, according to The Block. Yung Change Chiang, an official in the legislative Yuan of Taiwan, stated that he intended for the first draft to be available for reading by parliaments at the end of November.

He emphasized that with the new crypto laws, Taiwan’s crypto ecosystem will significantly improve. The growing concerns over activity in offshore markets have spurred this sudden move. The growth of digital assets is inevitable, and if Taiwan’s crypto ecosystem does not implement a regulatory framework, it opens its doors to numerous illicit activities. Taiwan’s Financial Supervisory Commission released guidelines in September to improve its crypto investor protections.

Also, Read Blockchain-based solutions for Africa’s recent antigovernmental protests.

The guidelines comprise rules blanketing Taiwan’s crypto ecosystem. In addition, it separates assets in the exchange’s treasury from those of the customer. It has also outlined several mechanisms for reviewing the listing and delisting of digital assets. Unfortunately, this only covers a small segment of Taiwan’s crypto ecosystem, increasing the need for standard crypto regulator frameworks.

Fortunately, if Taiwan successfully implements its crypto laws, it would significantly boost the industry. Crypto laws serve as a way of protecting users and ensuring the economic benefits for their trading volume. Its efforts will dramatically shape its position in the fourth industrial revolution.

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• Source: https://web3africa.news/2023/10/09/featured/the-growing-need-for-crypto-regulatory-frameworks/