Dial R for Regulation
Elise Soucie‘s monthly column will cover policy and consultation updates from around the world, as well as the latest digital innovations in institutional markets
2023 saw more publications and developments in global policy and regulation for digital finance than any previous era in financial regulation. Jurisdictions are racing to build their frameworks to attract new capital, talent, regulated firms, and innovative business models. The advent of these regulatory frameworks makes it a crucial time for industry engagement with the public sector on new regulatory frameworks and technology policy.
The start of 2024 has seen regulatory progress in both the EU and the UK. The EU’s Markets in Crypto Asset (MiCA) regulation is steadily moving towards implementation. In January, the European Supervisory and Markets Authority (ESMA) published consultations on guidance around reverse solicitation as well as the classification of crypto-assets as financial instruments under MiCA. The classification of crypto-assets is of particular interest for firms hoping to obtain a MiCA license in the EU and passport across EU Member States to offer their products and services.
Many in the City will be familiar with the Markets in Financial Instruments Directive (MiFID II) and its application across Europe. As with MiFID II, crypto-assets may be categorised as financial instruments differently in different Member States. If the industry believes further clarity is needed or has concerns about potential misinterpretation of MiCA and MiFID II, responding to the consultations before April 29th is the most effective way to make its voice heard.
In the UK, regulation also continues with the Bank of England (BoE) and Financial Conduct Authority (FCA) consultations on retail stablecoins for payments which closed for comment on the 6th of February. The Law Commission has also published a short piece of draft legislation confirming a “third category” of personal property rights, capable of accommodating certain digital assets including “crypto tokens.” These developments are building blocks of what will be a much larger regulatory framework for crypto and digital assets in the UK.
Underpinning and promoting improved standards across all regions are the principles recommendations of the global bodies and standard setters such as the Basel Committee, Financial Action Task Force (FATF), and International Organization of Securities Commissions (IOSCO). As each sets out their requirements, the years ahead will see individual jurisdictions working to implement these high-level principles with technical specificity.
For the past few years the industry has been calling for more regulatory clarity and legal certainty. Yet now is not the time to simply “Dial R” and hope for the emergence of perfect regulation. Instead, the industry must work for it through public-private sector engagement, responding to consultations, and true collaboration across the digital asset ecosystem.