In January 2023, PwC released its Global Crypto Regulation Report 2023, offering a comprehensive overview of regulatory developments for cryptocurrencies across more than 25 jurisdictions. With a focus on the financial services sector, the report analyzes how these changes impact financial institutions and Virtual Asset Service Providers (VASPs).
The findings indicate that most regulatory bodies worldwide have either established or are in the process of developing oversight frameworks for digital asset transactions. Recent incidents involving crypto exchange failures, fraud, scams, and mismanagement of customer assets have eroded trust, underscoring the urgent need for more consistent and comprehensive international regulations to strengthen consumer safeguards.
The Evolution of Crypto Regulation
The rapid expansion of cryptocurrency as a global asset class has increased its interconnection with traditional financial ecosystems. This growth, paired with a lag in risk management focus, has intensified financial risks. In response, international bodies are promoting greater cross-border cooperation.
National regulators are also establishing specialized international hubs for digital assets, technology, and innovation. The European Union, for example, is in the final stages of implementing its Markets in Crypto-Assets Regulation (MiCA). Dubai is creating the world’s first dedicated authority for virtual assets. Switzerland already boasts a mature regulatory framework that offers clear legal guidelines for market participants.
Key International Regulatory Initiatives
Financial Stability Board (FSB)
In October 2022, the FSB published a global regulatory framework for crypto assets and offered policy recommendations for stablecoin operations. The FSB identified several challenges in effective regulation, including:
- Gaps in regulators' existing authority and jurisdictional reach, including cross-border cooperation.
- Risks linked to wallets, custody services, trading, and lending.
- Widespread adoption of Distributed Ledger Technology (DLT).
The FSB plans to release its final recommendations in July 2023. Further work is expected throughout the year on risks related to Decentralized Finance (DeFi) and financial stability. By the end of 2025, the FSB will also review the implementation progress across member jurisdictions.
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Basel Committee on Banking Supervision (BCBS)
Building on a 2021 consultation paper, the BCBS released a second paper in June 2022 titled “Prudential treatment of cryptoasset exposures.” This standard classifies cryptoassets into two groups:
- Group 1: Includes qualified stablecoins that meet specific conditions.
- Group 2: Covers unbacked cryptocurrencies that do not meet classification conditions and pose higher risk.
The BCBS aims to apply supervisory review processes to banks’ crypto exposures, covering capital adequacy and risk management. Regulators may impose additional measures—such as capital increases or operational restrictions—if deficiencies are identified.
A final report is expected in early 2023. The BCBS has emphasized that continued growth in crypto markets could elevate financial stability risks, leaving the door open for stricter standards.
Financial Action Task Force (FATF)
In October 2021, the FATF updated its risk-based guidance for virtual assets and VASPs. The guidelines help regulators design oversight approaches and assist VASPs in understanding their Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) obligations—including the “Travel Rule.”
The Travel Rule requires VASPs to share sender and recipient information for cross-border transactions exceeding a certain threshold. A July 2022 FATF report noted limited progress in implementing this rule, with many jurisdictions yet to pass enabling laws or begin monitoring.
Additionally, most jurisdictions have not fully implemented Recommendation 15, which sets global AML/CFT standards for virtual assets and requires VASPs to be licensed or registered and subject to effective supervision.
EU’s Unified Regulatory Approach: MiCA
The Markets in Crypto-Assets Regulation (MiCA) represents the first cross-jurisdictional regulatory framework for crypto assets. Initially proposed in 2020 in response to global stablecoins, MiCA is expected to take effect in 2024, pending approval by the European Parliament in early 2023.
MiCA supports the European Commission’s goal of creating a comprehensive regulatory structure that offers guidance for the use of DLT and crypto assets in finance. Its main objectives include:
- Ensuring legal clarity.
- Protecting consumers and investors.
- Maintaining market integrity and financial stability.
- Encouraging innovation amid divergent national regulations.
MiCA signals a paradigm shift in digital asset regulation, and businesses are advised to prepare early for compliance.
Balancing Innovation with Regulation
Globally, regulators are actively researching, defining, consulting, and legislating to integrate digital assets into existing financial frameworks. However, the pace of implementation, methodologies, terminologies, and scope of services covered still vary significantly. Crypto industry participants have also expressed concerns over the lack of transparency and timely decision-making in regulatory processes.
Despite varying timelines, the direction is clear: stricter standards are coming, and digital asset businesses must prepare accordingly. Legislative bodies recognize the potential of technologies like DLT—for example, the use of stablecoins in cross-border payments—but expect the industry to innovate responsibly in addressing financial stability, consumer protection, and AML concerns.
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Frequently Asked Questions
What is the main goal of PwC’s Global Crypto Regulation Report?
The report aims to provide a detailed overview of cryptocurrency regulatory trends across over 25 jurisdictions, with a focus on implications for financial services firms and VASPs.
How is the EU regulating crypto assets through MiCA?
MiCA is a comprehensive regulatory framework designed to provide legal clarity, enhance consumer protection, and promote innovation, all while ensuring financial stability across EU member states.
What is the Travel Rule in crypto transactions?
The Travel Rule is a regulatory requirement that obliges VASPs to share customer information for cross-border crypto transactions exceeding a specific threshold to prevent money laundering and fraud.
Which international body is leading the development of global crypto regulation?
The Financial Stability Board (FSB) is playing a central role, along with the Basel Committee and FATF, in shaping consistent international standards.
What are stablecoins, and how are they regulated?
Stablecoins are cryptocurrencies pegged to stable assets like fiat currency. They are subject to specific regulatory conditions, including transparency and reserve requirements, under emerging frameworks like MiCA and BCBS guidelines.
How can crypto businesses prepare for upcoming regulations?
Companies should stay informed on international and local regulatory proposals, enhance compliance and risk management frameworks, and engage proactively with regulators.