The world’s most powerful regulatory bodies, including those in the US and the UK, have been publicly grappling with how to regulate or even reach major crypto players.
Approaches have varied from attempts to impose severe sanctions to threatening to extend existing regulations to cover specific types of crypto assets.
In the UK, there was talk of lengthy queues for crypto permissions which, perhaps understandably, the regulator had not felt comfortable enough to approve. Over the summer, however, the tide seemed to turn, as many crypto firms withdrew their applications to do business in the UK.
In the US, the chair of the Securities and Exchange Commission recently expressed disappointment at the industry’s slow response to his suggestion that cryptocurrency trading platforms voluntarily register with the SEC.
The spotlight on the sector is so bright because the stakes are so high. Some crypto exchanges are facilitating trading worth trillions of dollars. Some have millions of customers depending on them.
The race is on for a solution. The creation of a new regulatory body might just be the answer.
A new breed of financial services, a new digital world, may require a new regulatory body with a borderless approach to regulating what is, inherently, a borderless sector. Perhaps this will be the next generation of regulatory supervision.
To mirror the borderless nature of digital assets, such a body could supervise this truly international market across the globe, perhaps through agreements between specific jurisdictions which may well have already been seeking to harmonise regulatory standards in this space. This would have the added benefit of effectively countering the risk of regulatory arbitrage.
In addition to operating outside of borders, another key feature of this new watchdog would be the right leadership to provide effective, tailored supervision — leaders with a commitment to regulation, experience of working across borders, technical crypto and blockchain specialisation, and the relevant life experience fit for the digital sector.
It is vital that such a body be led not only by regulatory specialist lawyers who work across multiple jurisdictions in order to foster the new borderless approach to regulation, but also by deep technical industry specialists from within the crypto world.
A self-regulatory organisation — a non-governmental body which has the power to create regulation, supervise and enforce — is certainly not a revolutionary concept. There are many effective, well-functioning precedents in the US, the UK and beyond.
Wide-ranging membership and support from the crypto world would eventually render the new body’s badge of approval all but essential for winning customer trust and for being able to operate safely and successfully in this market. This would also give it the power to supervise and enforce across borders.
Ultimately, there is a choice to be made. We can continue trying to squeeze a square-shaped object through a round hole and accept the risk of some products and players falling between the gaps, thus exposing customers to a lack of regulatory protection. Or a tailored solution can be created — a new borderless body which covers the full spectrum of relevant products and players.
This body would have a new, more fitting approach to regulation with rules designed specifically and exclusively for the new digital breed.
Rabya Anwar is a partner at Keystone Law