How they do it in 37 nations

Crypto is in a way a big experiment that has no geographical boundaries. Bitcoin does not belong to the US, China, Russia or any company, government or king. Bitcoin is just that. That’s part of the appeal.

However, crypto regulation is a different beast. The laws stop at the borders. Politics matters. Most countries are still struggling with how to deal with this curious invention – technology that does not fit into a legal box. So regulation is its own kind of global experiment. Because each country more or less does its own thing, we can cast our eyes around the globe to see what works and what doesn’t.

As a thought exercise, what if we could pick the smartest bits of crypto regulation from around the planet? What can we emulate in the US?

A few caveats: First, the US has some unique regulatory challenges that make it harder to crack. “We have a fragmented set of regulations. We don’t have a unified regulator like some jurisdictions do, which makes it easier for them to respond to innovations that don’t fit well with existing product ranges, said Timothy G. Massad, a non-resident senior fellow at Brookings who studies crypto regulation.

This means that it may be unrealistic, from a practical perspective, to actually cobble together some sort of “greatest hits” of international politics. “A Frankensteining [or patching together of legislation] would probably never come to fruition, says Sheila Warren, executive director of the Crypto Council for Innovation and co-host of CoinDesk’s “Money Reimagined” podcast. And while Warren doesn’t believe we can actually cobble together any global legislation, she allows: “I love the blue-sky thinking, and I love the concept.”

So that’s the spirit of this experiment – ​​more of an idea spark than a real road map. And it’s also true that almost every expert I spoke to emphasized that there is not yet a silver bullet – from any country – that will solve regulation. “It’s too early to say,” says Michael Piwowar, executive director of the Center for Financial Markets at the Milken Institute. – We are in the early stages.

But aren’t early rounds the best time to speculate, challenge our perspectives and have a little fun? (Crypto is also the only topic on the planet where “global regulatory politics” can somehow be seen as “funny.”)

So let’s take a quick look at what the experts think about the regulatory globe:

Warren likes Japan’s approach to non-fungible tokens (NFT). “I think the process is very thoughtful. I think they’re consulting the right stakeholders, they’re looking at creators,” Warren says.

Japan is experimenting with how to set up good regulation, said Ananya Kumar, associate director of digital currencies at The Atlantic Center, an organization that tracks international crypto regulation. “The Bank of Japan is basically setting up associations that will help them clarify what the crypto activities are, and what the economic function of those activities is,” Kumar says.

It is also true that Japan has some history of crypto regulation. After the dramatic Mt. Gox exchange hack in 2015, the country established consumer protections, which is why JP Koning, writing for CoinDesk, argues that “Japan was the safest place to be an FTX customer.”

“MiCA [the European Union’s upcoming Markets in Crypto Assets policy] is by no means a perfect piece of legislation, but one of the things they did right was to focus on central custodial intermediaries,” says Kristin Smith, CEO of the Blockchain Association. – I think it is very positive.

Massad also likes “bits of MiCA”, particularly its approach to stablecoins. “I don’t want to take it word for word,” says Massad, but “they’re bringing the stablecoin activity within the realm of regulation … as opposed to what we are [in the United States] do, which tries to keep it out of traditional banking and otherwise leave it to be regulated by state law.”

Massad says both the EU and the UK have a basic legal framework for electronic money. Even if it’s imperfect, at least it’s “a starting point, and you can build from that.”

So why does it matter? “We [in the United States] need a basic e-money law. We don’t have one. We don’t have a good framework for regulating payments, in general, Massad says, which is why regulation is subject to state laws “that have been on the books since the days of the telegraph.” So drafting a legal framework for electronic money, Massad says, would be a “precursor to dealing with the challenges that crypto poses.”

Kumar likes that Mexico is “looking at creating regulatory sandboxes” to more safely experiment with policy solutions. Kumar explains that “regularly, sandboxes are an interesting way for countries to work with the private sector, form public/private partnerships, clarify the big questions about crypto, clarify the assumptions about crypto and then get to the regulatory business.”

She notes that sandboxing is controversial ( here’s a primer ), but says it provides a “confined environment to conduct experiments.” In the case of Mexico, Kumar says, regulators “have gone back and forth on what should be the role of traditional financial institutions in crypto. Should they be allowed to trade them? Hold them? Issue stablecoins?” They hope to find the answers in these regulatory sandboxes.

If regulatory sandboxes still seem a little confusing, consider the case of Canada. Kumar points to Canada’s use of a sandbox to figure out how to regulate exchanges. “Wealthsimple became the first exchange to be licensed in Canada, breaking out of that regulatory sandbox,” says Kumar. Or as the Canadian Securities Administrators explain on their website, the regulatory sandbox allows firms to “test their products, services and applications throughout the Canadian market on a time-limited basis.”

“Any time a country provides a framework for centralized custody intermediaries to register with the government and be regulated, it tends to provide a pretty good environment,” says Smith of the Blockchain Association.

Or as Piwowar puts it, for fintech regulation in general, Singapore “sort of wants to be the London of Asia. They want to be the safe regulatory environment that makes an inroad into Asia.” Piwowar notes that Singapore has a Chief Fintech Officer (Sopnendu Mohanty), which is a signal to entrepreneurs that the nation is open for business. For someone looking to start a company, “they made it one-stop shopping,” says Piwowar, “which is very different than in the United States.”

The Swiss approach is similar to Singapore, says Piwowar – which is why you have so many crypto companies and foundations based out of Zurich and Zug.

Then again, as a bit of added nuance, Sheila Warren suspects that Switzerland’s crypto-friendly reputation is starting to fade. Their model for making it easy to set up shop was “very, very clever at the time,” says Warren. So what is the error? “We’re so far beyond that,” she says. “Now we are talking about the activities that need to be regulated.” She considers the Swiss base model to be “the best in class at the time” and says it’s still useful, but warns it’s “for a certain type of thing”.

“If I’m really, really honest, the places that get it right are the places that go slower,” says Warren. – This is such a complicated area.

She highlights Helsinki as an example of well-thought-out experimentation that can later pave the way for sound policy. “I actually think what Helsinki was thinking about in terms of data and data trust and data governance is very important and very interesting, and people never talk about it,” says Warren.

Warren knows she’s biased — she was part of the World Economic Forum team that led the project — but says Helsinki piloted a “data policy blueprint” as a way to think creatively about how to organize public data in a way that preserves privacy . Helsinki “considered a time when blockchain is part of the architecture of a system,” Warren says, “and I think that’s forward-looking. That’s what I’m looking for.”

Ananya Kumar describes Thailand’s new regulations as “more comprehensive than those in the US and others,” and likes that they “have the beginnings of consumer protection regulation.” She says that “consumer protection is very, very difficult”, but thanks Thailand for trying.

She also appreciates the way Thailand has handled stablecoins because the country considers them “an e-money payment”. She added: “It’s legal, they allow it, there’s a regulatory body that controls it and you can use it for payment.”

“They’re experimenting, and they’re trying new things,” says Michael Piwowar, referring to Dubai’s launch of VARA, the Virtual Assets Regulatory Authority. “They want to be the leader not only in the Middle East, but also as a starting point for Africa and elsewhere in the region,” says Piwowar. The UAE has set up zones that have common law jurisdictions, he adds, and “both Abu Dhabi and Dubai have been very successful in attracting businesses in financial services in general, and fintech in particular, and are now moving towards virtual assets.”

As for the Bahamas, Warren says with a laugh, given the FTX fiasco: “Boom, done, let’s go home. It had to be said.”