The crypto failures of 2022 proved too much for many of the world’s regulators, with many clamping down even harder on the space. However, there are several governments taking a far more pragmatic and even optimistic approach. In this global roundup, we look at how regulators are crafting legislation and engaging in community and industry-wide consultation to find the right balance between protecting consumers and enabling innovation in this space. 

AUSTRALIA

For crypto world at large, Australia might seem like an unlikely place to start, but on Feb. 3 the Australian government became the first to release a Token Mapping Consultation Paper 

This follows the government’s announcement in August that it intended to step back to understand the different types of crypto assets and how to craft regulatory legislation. Australia’s strict financial regulatory system shielded the continent from the worst of the Asian Financial Crisis in 1997 and the Global Financial Crisis of 2008. With its four regulatory bodies – the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, the Reserve Bank of Australia and the Australian Treasury – all handling different parts of the country’s financial system, the challenge now lies in coordinating efforts across the agencies to formulate national regulatory standards, reforms and frameworks for crypto. The community and industry consultation process will run until March 3, 2023. 

JAPAN

Japan is no stranger to crypto shock. In 2010, Mt Gox, a Bitcoin exchange based in Tokyo that handled approximately 70 percent of all Bitcoin transactions, collapsed amidst the theft of a sizable portion of its BTC reserves. Since then, the Japanese Government has had over a decade to process the reality of the crypto revolution. With the Japanese economy in recession since May 2020 and one of the last to reopen to international tourists after the Covid-19 pandemic, Japan’s prime minister is banking on web3 adoption to boost innovation and attract investment. Throughout 2022 in his public speeches, Prime Minister Fumio Kishida expressed an  urgency to pull Japan into the new digital future by reviewing more than “40,000 analogue-era regulations” and advance efforts towards the “expanded use of Web 3.0 services that make use of the metaverse and non-fungible tokens (NFTs).” 

As one of the more mature and progressive governments dealing with this rapidly changing financial ecosystem, Kishida declared at the Budget Committee of Japan’s House of Representatives earlier this month that his government sees a place for NFTs and DAOs as a way to stimulate local economies and help citizens build meaningful communities. The Bank of Japan is currently piloting a digital yen, as one of many central banks around the world experimenting with Central Bank Digital Currencies.

HONG KONG

The Hong Kong Monetary Authority (HKMA) has commenced work on a regulatory framework that will establish mandatory licensing of crypto assets and stablecoins following a stakeholder consultation process that took place last year and garnered 58 submissions. It has just released its Conclusion Document on Jan. 31.

Expected to be enacted by 2024, it will require all stablecoins to prove “full backing and redemption at par: The value of the reserve assets of a stablecoin arrangement should meet the value of the outstanding stablecoins at all times.”  HKMA also announced that it is  “weighing the pros and cons between introducing new legislation and amending existing laws for implementation of the regulatory regime.”

SOUTH KOREA

South Korea felt the full brunt of 2022’s crypto woes with the spectacular and swift collapse in May of Korean-founded Terraform Labs, the company behind blockchain Terra and its native currency LUNA. With the government at the time forced to issue arrest warrants against the two Terra/LUNA co-founders and freeze their assets, it comes as no surprise that the South Korea has been looking to put better measures in place to secure the industry for any other calamities. 

Last week, its regulator the Financial Services Commission (FSC) released guidelines for the regulation of security tokens, aiming to align it with rules regarding  traditional financial instruments. Security tokens are a way to tokenize traditional securities and provide access to investment opportunities through a decentralized marketplace. The new regulation states that any crypto asset that behaves the same way as a traditional investment vehicle will be regulated under its existing Capital Markets Act. This is just one of many discussions in place to enact a more comprehensive legal framework governing the entire crypto sector. It is anticipated that the Digital Asset Basic Act (DABA) will be announced mid this year. 

DUBAI

Styling itself as the shiny crypto hub of the Middle East, Dubai’s Virtual Asset Regulatory Authority (VARA) on Feb. 7 released its regulatory framework for virtual assets. The Emirate of Dubai is positioning itself as a safe jurisdiction to headquarter, build and invest in blockchain, artificial intelligence and metaverse projects by ensuring consumer protection and strict anti-money laundering and anti-terrorist monitoring. What is interesting is that VARA “is an independent regulator for virtual assets that aims to take its mission global by creating an easy to replicate framework to regulate the industry.” 

UNITED KINGDOM

Despite its reputation as the financial capital of (well, no longer) Europe, the UK’s regulator, the Financial Conduct Authority does not have a specific framework around the regulation of crypto-assets. As of Feb. 1, this is set to change, following the UK Government’s announcement that it plans to regulate crypto. Citing consumer protection and business confidence as key reasons, it is opening up a consultation process that will run until April 30,2023. With the UK’s vision to “become a global hub for crypto-asset technology,” the government has stated that this upcoming process will pave the way for the UK to be viewed as “a safe jurisdiction for crypto-asset activity to take place, fostering innovation and providing firms clarity over the planned regulatory framework.”