This research was conducted by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School with the support of the Nomura Research Institute (NRI). A number of external contributors have joined the CCAF research team to produce this comprehensive, systematic, and comparative analysis of the current regulatory landscape of cryptoassets and related activities. The study covers 22 jurisdictions and is based on both desktop research and in-person interviews with regulators and policymakers. The report aims to compare and contrast various regulatory approaches and practices with regards to cryptoassets in a number of jurisdictions and shed light on current regulatory challenges and opportunities.
Section 1 sets out a theoretical framework to conceptualise cryptoassets and related activities. It looks at three key aspects in a regulatory context: (1) the nature and form of cryptoassets, (2) the issuance of cryptoassets, and (3) intermediated activities in the life cycle of cryptoassets. A number of regulatory recommendations are brought forward, which include:
Q1 hedge fund letters, conference, scoops etc
- Traditional assets recorded on a distributed ledger technology (DLT) infrastructure (i.e. tokenisation) should be distinguished from new and natively-digital cryptoassets with unique characteristics. The fundamentally new characteristic of a natively-digital cryptoasset is the incentive role that it may play in a particular network;
- A legal and regulatory classification of a cryptoasset should be based on an in-depth assessment of several factors (e.g. rights attached, access, economic function of the token) generally on a case-by-case basis.
- The majority of cryptoasset-related activities carried out by intermediaries show strong similarities to existing financial activities found in traditional markets (e.g. exchange and trading), and therefore might be regulated as such. Only a relatively small number of cryptoasset-specific activities can be considered novel (e.g. mining).
Section 2 provides a global comparative analysis of cryptoasset regulation in 22 jurisdictions. It examines regulatory authorities regulating cryptoassets, their current definition and classification of cryptoassets and related activities, as well as regulatory processes and responses (e.g. existing regulation, retrofitted regulation, bespoke regulation and bespoke regulatory regime). Key findings of this section include:
- The scope of different regulatory authorities (“regulatory perimeter”) can and often does overlap when regulating cryptoasset activities. Our research shows that, on average, three distinct national bodies per jurisdiction have issued official statements on cryptoassets, including warnings;
- The extension of the initial study sample from 22 jurisdictions to 40 jurisdictions reveals that central banks have usually been the first type of regulatory authority to issue official statements (including warnings about cryptoassets), followed by government departments (e.g. Ministry of Finance), and financial supervisory bodies;[1]
- Based on the augmented sample of 40 jurisdictions, it appears that the majority of official cryptoasset-related statements by regulators were issued during 2013, the year in which cryptoassets went mainstream as a result of prices reaching new all-time highs;
- There is no standard usage of terminology across regulators and a variety of terms have been used to refer to cryptoassets in official statements. Notably, the term virtual currency has been used most frequently in official documents, although it has often been used interchangeably with cryptocurrency and digital currency;
- Regulators’ first step towards regulating cryptoassets has typically been to distinguish cryptoassets which are deemed to be securities from other types of cryptoassets;
- Existing regulatory frameworks generally classify cryptoassets into payment, utility, and security tokens, although frameworks in certain jurisdictions consider an additional fourth category of hybrid tokens that share characteristics of multiple categories;
- Engagement with industry players and other regulators before the development of a regulatory response has emerged as a good practice;
- Regulators may model their regulatory response on those developed by authorities in other jurisdictions, in particular jurisdictions with high levels of cryptoasset activities.
- An extended sample of 108 jurisdictions reveals that countries with higher levels of domestic cryptoasset activity tend to have retrofitted regulations, whereby existing laws and regulations are amended to respond more swiftly to innovative and new-to-market activities;[2]
- The most sophisticated regulatory frameworks (i.e. bespoke regulatory regime or bespoke regulation) are often found in smaller countries with a relatively low level of domestic cryptoasset activity and a history of a less rigid attitude towards financial regulation;
- Regulators have to date focused mainly on addressing regulatory concerns over initial coin offering (ICOs) and cryptoasset exchange activities. These two activities are often regulated under existing securities law, supplemented with guidance from the securities supervisor;
- All 22 jurisdictions from the study sample have brought at least one intermediate cryptoasset activity (e.g. exchange, storage) under the remit of their anti-money laundering and counter-terrorism financing (AML/CFT) regulations;
- Almost half of the jurisdictions surveyed distinguish between custodial and non-custodial service providers, implying awareness of the complexities of cryptoasset storage;
- A majority of jurisdictions surveyed regulate exchanges handling both cryptoassets and fiat currencies and exchanges dealing exclusively with cryptoassets (“crypto-only”).
Section 3 highlights some of the most salient challenges and potential gaps that stem from the development and implementation of cryptoasset regulation. The section reveals four main findings:
- Despite best efforts to bridge the knowledge gap, insufficient access to data and information has led regulators to primarily focus their attention on ICOs and exchanges. Consequently, other key activities, such as alternative token distribution mechanisms (i.e. airdrop and fork), decentralised exchanges, and the creation of cryptoassets through mining or the peer-to-peer transfer of cryptoassets, have been overlooked;
- Unclear terminology and classification, inherent limitations to regulatory principles, and regulatory arbitrage are factors that challenge regulators’ ability to robustly define their regulatory perimeter and implement regulations;
- In many of the jurisdictions studied, regulators have addressed key risks related to financial integrity and systemic issues as well as investor and consumer protection. Additional risks may warrant further regulatory attention;
- Securities laws, banking and payment laws, and/or AML laws have so far received the most regulatory attention in relation to regulating cryptoasset-related activities. Regulators may need to consider how other laws might be applicable, such as tax or property law. Regulators might want to fully examine the efficacy and adequacy of existing regulations before developing new and bespoke regulations, and identify cryptoasset activities that do not require (additional) regulation.
Section 4 consists of an in-depth analysis of cryptoasset regulations in 22 jurisdictions that constitute the backbone of the comparative analysis.
The research team hopes that this report will serve as a useful empirical study to inform industry stakeholders as well as evidence-based regulation and policymaking.
[1] The extended sample of 40 jurisdictions is based on the following report: The Law Library of Congress (2014) Regulation of Bitcoin in Selected Jurisdictions. Available at: https://www.loc.gov/law/help/bitcoin-survey/regulation-of-bitcoin.pdf [Last accessed: 04 February 2019].
[2] The extended sample of 108 jurisdictions is based on the following report: The Law Library of Congress (2018) Regulation of Cryptocurrency Around the World. Available at: https://www.loc.gov/law/help/cryptocurrency/cryptocurrency-world-survey.pdf [Last accessed: 04 February 2019].
