Update on Digital Asset Regulations and Rules Around the World 2024

Statistics and the Rise of Digital Asset Regulations

• In September 2024, the global cryptocurrency market reached a value of approximately $2.24 trillion, according to the World Economic Forum. Daily cryptocurrency trading volume hovers around $91 billion, with Bitcoin and Ethereum dominating the market.

• However, this growth has been accompanied by illegal activities. Significant instances include hacking incidents resulting in losses of nearly $2 billion in 2022 and cryptocurrency-enabled money laundering reaching $22.2 billion in 2023. Though lower than the previous year, this remains a critical issue demanding vigilant monitoring.

• To ensure security and stability, clear regulatory frameworks are essential for the rapidly evolving digital asset industry. Many nations are actively developing and refining regulations, often drawing from the Financial Action Task Force (FATF) recommendations while incorporating specific requirements for digital asset service providers.

FATF’s Oversight and the ‘Travel Rule’

• The FATF advises nations to regulate virtual asset service providers (VASPs) similarly to traditional financial institutions. This includes mandatory registration or licensing and adherence to anti-money laundering (AML) regulations such as Know Your Customer (KYC) protocols, transaction monitoring, and sanctions screening.

• A key requirement is the ‘Travel Rule,’ which mandates that VASPs and financial institutions collect and exchange personal information of transaction senders and recipients, particularly for cross-border transactions exceeding $1,000 USD/EUR.

• As of April 2024, 65 out of 94 nations have implemented Travel Rule laws, with 15 more in the process of doing so to mitigate money laundering risks associated with digital assets.

Notable Regulatory Developments Worldwide

Digital asset regulatory bodies globally are actively shaping policies, primarily focusing on stablecoin regulations and cross-border transactions.

United States

• The US Commodity Futures Trading Commission (CFTC) is considering allowing digital assets as collateral. If approved, this would represent a significant step towards integrating digital assets into traditional financial markets. The US maintains a strong focus on cryptocurrency regulation to safeguard investors and preserve financial stability.

• Digital asset regulation in the US is decentralized, involving multiple agencies like the SEC, CFTC, FDIC, and the Treasury Department. Recent years have seen draft legislation aiming to clarify regulatory boundaries, such as the Lummis-Gillibrand and McHenry bills addressing stablecoins and the FIT 21 draft outlining a framework for the digital asset market. While some legislation remains pending, this decentralized approach empowers states like New York to rapidly develop their own regulations.

Canada

Canadian regulators prioritize investor protection in their evolving stablecoin regulations, aiming to bolster confidence and security in the digital asset market. These regulations could enhance investor trust while potentially posing challenges for smaller crypto firms, impacting innovation and competition within the Canadian market.

European Union (EU)

• The EU introduced the Markets in Crypto-Assets (MiCA) regulation in 2023 as a cornerstone of its digital finance strategy. MiCA provides a comprehensive regulatory framework to enhance security and transparency for digital assets.  Effective from June 2024, with full implementation by December 2024, MiCA prioritizes investor protection, harmonizes regulations across member states, and supersedes existing national laws.

• Beyond MiCA, the EU has implemented other relevant regulations, including the Digital Operational Resilience Act (DORA), which focuses on the operational resilience of financial institutions, encompassing cyber risk management and disruption preparedness.

• The EU also features a DLT Pilot Regime, a sandbox environment enabling financial institutions to explore blockchain technology applications.

• Many European nations, such as Estonia, France, the Netherlands, and Belgium, enforce the Travel Rule and have strengthened their AML/CFT laws. Switzerland has introduced new FINMA guidelines for stablecoins to mitigate risks like money laundering.

• Overall, the EU is fostering a conducive environment for the growth of the digital asset industry while prioritizing investor protection and financial system stability.

United Kingdom

• The UK is developing regulations to stabilize the market, protect investors, and foster innovation. This involves distinguishing between securities-type digital assets, uncollateralized cryptocurrencies, and stablecoins.  Aligning with the EU's MiCA framework, the UK is focusing on stablecoin regulation to enhance market confidence.

• The Financial Conduct Authority (FCA) serves as the primary regulatory body, with The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 as a key legal instrument. The Travel Rule is officially in effect.

Brazil

Brazil plans to implement its stablecoin regulatory law in 2025. A draft proposal from the Central Bank of Brazil is under consideration, including a potential rule prohibiting the withdrawal of stablecoins pegged to foreign currencies to self-custody wallets.

South Africa

South Africa is developing stablecoin regulations, examining their usage and financial implications, including the tokenization of real-world assets. A policy document is expected by December 2024.  Cryptocurrencies have been regulated as financial products since 2023, and stablecoins will be integrated into this framework.

Movements in Asia

While China implemented a complete crypto ban in 2021, many neighboring countries have embraced the industry. The focus in Asia has shifted towards consumer protection and regulatory clarity for businesses.

Thailand

The Thai SEC has proposed new regulations enabling mutual and private funds to invest in digital assets. This aims to expand investment options and cater to growing investor interest, particularly following the introduction of US-listed Bitcoin and Ethereum ETFs earlier this year.

Singapore

• Singapore has emerged as a leader in digital asset regulation.  In 2023, the Monetary Authority of Singapore (MAS) announced new regulations, effective mid-2024, designed to protect retail traders. These include restrictions on credit for crypto trading, prohibitions on trading incentives, and bans on purchasing crypto with locally issued credit cards.

• Singapore has become a major Asian digital asset hub, with MAS as the primary regulator.  Key legislation includes the Payment Services Act 2019 (PS Act) and the Financial Services and Markets Act 2022, which regulate digital payment token (DPT) service providers such as cryptocurrency exchanges.

• MAS has established a robust regulatory framework for DPTs, with stringent rules like prohibiting margin trading and other potentially risky offerings to retail customers. Platforms are required to disclose benefits, publish control measures, and establish customer dispute resolution mechanisms.

• Singapore's regulatory approach, coupled with factors like low tax rates, a stable financial infrastructure, and high crypto adoption, has solidified its position as a leading digital asset hub both regionally and globally.

Hong Kong

• Hong Kong is rapidly becoming a key digital asset center.  In October 2022, the Financial Services and the Treasury Bureau (FSTB) released a policy statement on virtual asset development, outlining a vision for regulation based on the principle of "same activity, same risk, same regulation."  In June 2023, a high-level task force was formed to promote Web3 development, balancing regulation with innovation.

• Hong Kong is currently adopting a more liberal approach, welcoming crypto businesses and establishing its own licensing regime.  It aims to become a global digital asset hub through a comprehensive regulatory framework.  Further developments in 2024 include plans to introduce a stablecoin regulatory bill to the legislature by year-end.

Japan

• Japan boasts one of the world's most advanced legal frameworks for digital assets, particularly for stablecoins. This is driven by government support and Web3-friendly policies that recognize Web3 as a key economic driver. Japan has fully embraced digital asset regulation, led by the Financial Services Agency (FSA). The FSA plays a central role in policy-making and enforcement.  Other key players include the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organization for the crypto industry, and the Japan Security Token Offering Association (JSTOA), which aims to provide clarity for businesses and investors. These organizations contribute to creating tailored rules and policies within their respective jurisdictions.

• Notably, Japan is the first nation to implement a "regulatory equivalence system for cross-border use of stablecoins." This allows foreign-issued stablecoins meeting Japanese regulatory standards to be used domestically.

South Korea

• South Korea is preparing to regulate stablecoins for cross-border transactions, enhancing investor protection by mitigating financial risks such as money laundering and tax evasion. These measures, effective next year, will require digital asset operators to report transactions to the Bank of Korea (BOK) monthly.

Malaysia

• Malaysia mandates licensing for VASPs and enforces AML rules, including the Travel Rule.

India

• India requires VASPs to comply with AML/CFT requirements.

Qatar

• The Qatar Financial Centre (QFC) has introduced comprehensive regulations for digital assets. Key features include legal recognition for digital assets and smart contracts, support for asset tokenization, robust investor protection, and adherence to international standards for security and transparency.  Qatar's collaboration with industry experts has positioned it as a progressive jurisdiction in the digital asset space, attracting domestic and international businesses.

United Arab Emirates

• The UAE fosters a business-friendly environment for digital assets. While cryptocurrencies are not legal tender, they can be held and traded. The UAE's regulatory framework provides clarity and promotes sustainable growth in the digital asset industry while upholding safety and accountability standards.

Dubai

• Dubai established the Virtual Assets Regulatory Authority (VARA) in 2022 under the Virtual Assets Regulatory Law. VARA aims to position Dubai as a leader in the digital asset space, balancing growth with security to foster a sustainable and transparent ecosystem for investors and market participants.

• In 2024, the Dubai International Financial Centre (DIFC) enacted the Digital Assets Law and updated related legislation to provide clarity for investors and support technological advancement.

Abu Dhabi

• Abu Dhabi Global Market (ADGM) is a pioneering regulator, requiring exchanges to undergo audits and obtain regulatory approval before conducting public token offerings.

Source:

https://www3.weforum.org/docs/WEF_Digital_Assets_Regulation_2024.pdf 

https://sumsub.com/blog/aml-cryptocurrency-regulations-around-the-world/ 

https://www.pwc.com/gx/en/industries/financial-services/assets/navigating-the-global-crypto-landscape-with-PwC-2024.pdf 

https://beincrypto.com/brazilian-regulators-target-stablecoins/ 

https://cointelegraph.com/news/qatar-financial-centre-digital-assets-regulation 

https://cointelegraph.com/news/south-korea-to-regulate-cross-border-stablecoin-transactions