The World of Evolving Crypto Assets Regulations
Finding The Way Forward

Adam Gable
Adam Gable – Product Director – Financial Crime, Treasury and Risk

In the realm of finance, where the dynamics of regulations and innovations intertwine, one might not immediately draw parallels to Shakespeare’s The Taming of the Shrew. However, in the white paper titled “Evolving Crypto Assets Regulations: The Taming of the Shrew” by Temenos, the analogy provides a compelling lens through which to explore the complex interplay between regulation and innovation in the world of cryptocurrency.

Just as Shakespeare’s play revolves around the tale of an energetic power struggle between two, not so innocent, partners, the crypto industry finds itself at a crossroads, grappling with opposing arguments about the need for regulation while navigating the often-difficult terrain of innovation. The white paper cleverly draws parallels between the themes of transformation and adaptation in both narratives.

Once More Unto The Breech, Dear Crypto Enthusiasts!

In the opening pages of the white paper, the analogy is aptly introduced by likening the challenges the crypto industry faces to the tumultuous landscape of climate change. Just as scientists grapple with the realities of transformation, stakeholders in the crypto space must confront the pressing need for regulation amidst rapid growth and innovation.

The crypto world is in turmoil. The white paper says it’s obvious there will be market consolidation and only regulated and licensed crypto firms will eventually survive: “Secure and liable legal certainty is needed to restore trust in crypto assets and firms and to make the markets suitable for the masses. Even though crypto assets and firms increase, they still represent a low-volume-high-value market compared to established markets in FX, commodities, securities, precious metals, and derivatives; they are not yet suitable for retail customers,” the report says.

The white paper presents us with a cast of characters representing the stakeholders in the crypto ecosystem, from regulators to financial institutions to individual investors. Each character plays a distinct role in the unfolding drama of creating, innovating and reflecting the complex web of interests at play.

The white paper delves into significant trends shaping the regulatory landscape. From the prioritization of consumer protection to the rise of decentralized finance (DeFi), the narrative portrays an industry in flux.

Crypto Trends To Watch From The Wings!

The following trends in the crypto space are a selection of what the financial industry can expect soon. This is just a selection – more trends are featured in the white paper.

• Regulators across the globe will prioritize consumer protection to prevent fraud and market manipulation.

• There will be a focus on customer protection in cryptos, like MiFID II (Markets in Financial Instruments Directive 2) provisions with investor training, education, information, and the recording of advisory.

• Regulators will direct their enforcement efforts at DeFi and the increasing criminal activities.

• Regulators will closely monitor money laundering risks involving NFTs.

• VASP/CASP due diligence will become a widespread compliance practice in TradFi and DeFi.

• Expect a lot more rules to emerge on how crypto assets and firms should be regulated, i.e., AML (Anti Money Laundering) and sanctions, market abuse (e.g., EU’s Market in Crypto Assets Regulation MiCAR, Monetary Authority of Singapore (MAS) 2019 Payments Services Act PSA and more!

• Compliance processes must use blockchain analytic tools when assessing risks in AML/CFT and fraud.

• Hiring people with technology knowledge from other asset classes increases the crunch for scarce compliance resources.

• Finally, crypto assets will become integrated mainstream.

Central to the narrative is the notion of trust – a theme that resonates deeply in Shakespeare’s play and in finance. Just as Petruchio must earn the trust of his bride, so too must stakeholders in the crypto industry work to build trust and confidence in the integrity of the system.

Hope Springs Eternal

Yet, amidst the chaos and uncertainty, there is hope. Just as Petruchio and his bride find true harmony, so too can the crypto industry find its footing through thoughtful regulation and responsible innovation. As the white paper concludes, it is only through a concerted effort to strike a balance between innovation and regulation that the promise of crypto assets can be fully realized.

Please use this link to download the white paper here.

Adam Gable
Adam Gable – Product Director – Financial Crime, Treasury and Risk