The World’s Best Crypto Policies: How They Do It In 37 Nations

What can the United States learn from regulation around the world? Jeff Wilser takes a grand tour. The World’s Best Crypto Policies: How They Do It In 37 Nations

Crypto, in a sense, is a grand experiment that has no geographic borders. Bitcoin does not belong to the United States, China, Russia or to any company, government, or king. Bitcoin just is. That’s part of the appeal.

Countries That First Outlawed Crypto But Then Embraced It

Crypto regulation, however, is a different beast. The laws stop at borders. Politics matter. Most countries are still struggling with how to handle this curious invention – tech that doesn’t cleanly fit into any one legal box.

So regulation is its own sort of global experiment. Because every country is more or less doing its own thing, we can cast our eyes around the globe to see what’s working and what’s not.

As a thought exercise, what if we could cherry-pick the smartest bits of crypto regulation from around the planet? What could we emulate in the United States?

A few caveats: First, the U.S. has some unique regulatory challenges that make it trickier to crack. “We have a fragmented regulatory system.

We don’t have a unitary regulator the way some jurisdictions do, which allows them to more easily respond to innovations that do not fit neatly into pre-existing product buckets,” says Timothy G. Massad, a nonresident Senior Fellow at Brookings who studies crypto regulation.

This means that it might be unrealistic, from a practical perspective, to actually cobble together some sort of “greatest hits” of international policy. “A Frankensteining [or patching together of legislation] probably wouldn’t ever come to fruition,” says Sheila Warren, CEO of the Crypto Council for Innovation and co-host of CoinDesk’s “Money Reimagined” podcast.

And while Warren doesn’t think we could actually cobble together any global legislation, she does allow that, “I love the blue sky thinking, and I love the concept.”

So that’s the spirit of this experiment – more of an idea-sparker than a true road map. And it’s also true that nearly every expert I spoke with emphasized that there isn’t yet a silver bullet – from any country – that solves regulation.

“It’s too early to tell,” says Michael Piwowar, executive director of the Center for Financial Markets at the Milken Institute. “We’re in the early innings.”

But aren’t early innings the best time to speculate, to challenge our perspectives and to have a little fun? (Crypto is also the only topic on the planet where “global regulatory policy” can somehow be seen as “fun.”)

So let’s take a quick look at what the experts think of the regulatory globe:

Japan

Warren likes Japan’s approach to non-fungible tokens (NFT). “I think the process is really thoughtful. I think they’re consulting the right stakeholders, they’re looking at creators,” says Warren.

Japan is experimenting in how to set up good regulation, says Ananya Kumar, associate director of digital currencies at The Atlantic Center, an organization that tracks international crypto regulation.

“The Bank of Japan is basically setting up associations that will help them clarify what the crypto activities are, and what the economic function of those activities are,” says Kumar.

It’s also true that Japan has some history with crypto regulation. After the dramatic Mt. Gox exchange hack in 2015, the country established consumer safeguards, which is why JP Koning, writing for CoinDesk, argues that “Japan was the safest place to be an FTX customer.”

The European Union

“MiCA [the European Union’s upcoming Markets in Crypto Assets policy] is by no means a perfect piece of legislation, but one of the things that they did do right was focus on central custodial intermediaries,” says Kristin Smith, CEO of the Blockchain Association. “I think that’s very positive.”

Massad also likes “pieces of MiCA,” specifically its approach to stablecoins. “I wouldn’t take it word for word,” says Massad, but “they’re bringing the stablecoin activity within the regulatory perimeter … as opposed to what we’re [in the United States] doing, which is trying to keep it out of traditional banking and otherwise leaving it to be regulated by state law.”

The United Kingdom

Massad says that both the EU and the U.K. have a basic legal framework for electronic money. While it’s imperfect, it’s at least “a starting point and you can build from that.”

So why does that matter? “We [in the United States] need a basic e-money law. We don’t have one. We don’t have a good framework for regulating payments, generally,” says Massad, which is why regulation is subject to state laws “that have been on the books since the telegraph era.” So drafting an electronic-money legal framework, says Massad, would be a “precursor to dealing with the challenges crypto poses.”

Mexico

Kumar likes that Mexico is “looking at creating regulatory sandboxes” to more safely experiment with policy solutions. Kumar explains that “regularly sandboxes are an interesting way for countries to work with the private sector, form public/private partnerships, clarify the big questions about crypto, clarify the assumptions about crypto and then get to the business of regulating.”

She notes that sandboxing is controversial (here’s a primer), but says it provides a “contained environment to perform experiments.” In the case of Mexico, says Kumar, regulators have “gone back and forth on what should be the role of traditional financial institutions in crypto. Should they be allowed to trade in them? Hold them? Issue stablecoins?” They hope to find the answers in these regulatory sandboxes.

Canada

If regulatory sandboxes still seem a bit confusing, consider the case of Canada. Kumar points to Canada’s use of a sandbox to help figure out how to regulate exchanges. “Wealthsimple became the first exchange to get licensed in Canada, coming out of that regulation sandbox,” says Kumar.

Or as the Canadian Securities Administrators explain on its website, the regulatory sandbox allows firms to “test their products, services and applications throughout the Canadian market on a time limited basis.”

Singapore

“Any time a country provides a framework for centralized custodial intermediaries to register with the government, and to be regulated, that tends to provide a pretty good environment,” says Smith of the Blockchain Association.

Or as Piwowar puts it, for fintech regulation in general, Singapore “sort of wants to be the London of Asia. They want to be the safe regulatory environment that gives a foray into Asia.” Piwowar notes that Singapore has a chief fintech officer (Sopnendu Mohanty), which is a signal to entrepreneurs that the nation is open for business. For someone who wants to set up a company “they made it one-stop shopping,” says Piwowar, “which is very different than in the United States.”

Switzerland

The Swiss approach is similar to Singapore, says Piwowar – which is why you have so many crypto companies and foundations based out of Zurich and Zug.

Then again, as a bit of added nuance, Sheila Warren suspects the crypto-friendly reputation of Switzerland is beginning to fade. Their model of making it easy to set up shop was “very, very smart at the time,” says Warren. So what’s the hitch? “We’re so far beyond that,” she says.

“Now we’re talking about the activities that need to be regulated.” She considers the Swiss foundation model to be “the best-in-class at the time” and says it still remains useful, but cautions that it’s “for a particular kind of thing.”

Finland (Helsinki, specifically)

“If I’m really, really frank, the places getting it right are the places that are going slower,” says Warren. “This is such a complicated area.”

She cites Helsinki as an example of thoughtful experimentation that could later pave the way for sound policy. “I actually think what Helsinki thought about in terms of data and data trust and data government, is really important and really interesting, and people don’t ever talk about it,” says Warren.

Warren knows that she’s biased – she was part of the World Economic Forum team that led the project – but says that Helsinki piloted a “blueprint for data policy” as a way to think creatively about how to organize public data in a way that preserves privacy. Helsinki was “contemplating a time when blockchain is part of the architecture of a system,” says Warren, “and I think that’s forward-thinking. That’s what I’m looking for.”

Thailand

Ananya Kumar describes Thailand’s new regulations as “more comprehensive than the rules in the U.S. and others,” and likes that they “have the beginnings of consumer protection regulation.” She says “consumer protection is really, really hard” but credits Thailand for the attempt.

She also appreciates the way Thailand has handled stablecoins because the country considers them “an e-money payment.” She added, “It’s legal, they allow for it, there’s a regulatory body that controls it and you can use it in payment.”

United Arab Emirates

“They’re experimenting, and they’re trying new things,” says Michael Piwowar, referring to Dubai’s launch of VARA, the Virtual Assets Regulatory Authority. “They want to be the leader not only in the Middle East, but also as a launching-off point for Africa and other places in the region,” says Piwowar. The UAE has set up zones that have common law jurisdictions, he adds, and “both Abu Dhabi and Dubai have been very successful at attracting businesses in financial services in general, and fintech in particular, and are now moving towards virtual assets.”

The Bahamas

As for the Bahamas, Warren says with a laugh, given the FTX fiasco, “Boom, done, let’s go home. It had to be said.”

Updated: 1-25-2023

What You Need to Know About Crypto Regulation in Hong Kong, Singapore, Japan

Asia’s biggest financial centers seem eager to encourage the growth of the crypto industry while protecting consumers and preventing contagion if things go wrong.

Top global financial centers Japan, Hong Kong and Singapore have some of the most mature financial regulations worldwide. It’s no surprise, therefore, that discussions on how to regulate crypto began years ago, though they have taken very different directions.

Japan went hard on consumer protection but more recently has relaxed requirements for token listings and pushed a more welcoming message for firms.

While China banned crypto trading and clamped down on mining, Hong Kong exerted its autonomy to chart its own way, announcing that it was open to crypto firms in a bid to preserve its status as an international finance center.

Crypto firms may find meeting the regulatory bar to be difficult in the beginning, but the signs are that regulations will keep easing. Meanwhile, in Singapore, existing market players know that regulations will tighten further.

Last year’s implosion of high-profile firms registered in the city-state, such as Three Arrows Capital and Terraform Labs, kicked off a regulatory process that looks likely to result in more restrictive regulations.

Despite their differences, “The more developed markets in Asia are fairly advanced in providing clarity on what falls within the virtual asset service provider (VASP) framework,” Vivien Khoo, co-founder of the Asia Crypto Alliance said, noting that Hong Kong and Singapore have a “fairly similar” VASP framework.

Collaboration among countries across the region will tighten. “It will be much harder to engage in regulatory arbitrage now in Asia,” Khoo said.

Japan

Japan was among the earliest countries worldwide to regulate cryptocurrency exchanges, but that wasn’t because it wanted to be ahead of the curve.

The agency simply had drafted Japan’s body of law on virtual currencies to fulfill an agreement made in 2014 with fellow members of the International Organization of Securities Commissions (IOSCO), according to a person close to Japan’s Financial Services Agency (FSA).

But in early 2017, when China’s government shut down some exchanges in what was crypto’s trading epicenter, Japan became one of the most dynamic places in the world for crypto.

The nation had been burned once already by the hack and subsequent failure of crypto exchange Mt Gox in 2014. The $530 million hack of local exchange CoinCheck in 2018 proved a turning point for its crypto policy.

In came some of the strictest consumer protection legislation worldwide, placing high demands on exchanges (some of them complain that compliance cuts into their profitability), including mandating them to segregate exchange and customer assets, and hold most customer assets in cold wallets.

The upside is that customers of FTX’s Japan subsidiary will get their funds, while those of other FTX entities suffered tremendous losses. Now, legislators in Japan are looking to show companies that it’s a good time to set up shop in the country.

Japan’s politicians put their heft behind speeding up their regulatory process last year. In December, the country approved an important tax change, which will be put into law this year.

Projects will be able to issue tokens without paying onerous corporate taxes, which had essentially forced them abroad.

“It’s definitely a clear signal from the Japanese government that we are pro-crypto,” Akihisa Shiozaki, Liberal Democratic Party politician and secretary general of the party’s Web3 project team, told CoinDesk.

This year, the country’s lawmakers will continue discussions on legalizing decentralized autonomous organizations (DAO) and regulation may be issued sometime during this year’s legislative session, which ends in June.

Shiozaki said that the aim is to add clarity in taxation and formal legal structure in giving limited liability to members involved in crypto projects. He said that key themes under discussion relate to disclosure obligations, security offering, and internal governance rules.

“What will not happen is a strengthening or tightening of controls against crypto,” Shiozaki said.

Hong Kong

Hong Kong’s is a different story. Limited regulation on crypto meant the city was once home to some of the biggest names in the business, including Bitmex and, at one time, now-defunct exchange FTX.

In recent years, Hong Kong lost that lead. Firms were scared off when its Securities and Futures Commission (SFC) started examining token listings. When China’s latest ban on crypto was announced, some companies wondered if the city’s autonomy was under threat.

The Zero-Covid policy and long hotel quarantines further dampened spirits. Asia’s premier crypto festival, Token 2049, left Hong Kong for its rival financial hub Singapore.

A person close to the SFC told CoinDesk that if the city were really to ban crypto, regulators would have had a heads-up early on from the powers-that-be across the border and would not have spent many months drawing up regulation. Still, many firms weren’t getting that message.

Even so, all through last year retail investors were still speculating on non-fungible tokens (NFT) and using unlicensed exchanges, the city’s richest were talking metaverse, and bitcoin machines and over-the-counter crypto shops were everywhere in the city. The philosophy seemed to be to make money until regulation came in.

Companies that wanted to be compliant complained that the regulator sat on applications for its opt-in licensing process, sending them a question once every few months. Only one firm had a license (another had in-principle approval) by the time Hong Kong FinTech Week rolled around.

The city’s regulators saw an outflow of talent and firms, which could affect its status as an international finance center. They made a concerted push to change the narrative.

They announced the city was open to crypto firms and that they would dial back on plans to restrict retail from using licensed exchanges. They repeatedly underscored the city’s autonomy, in financial regulation, from China.

The incoming VASP regime, as it stood at the beginning of last year, would have meant only exchanges with licenses could operate in the city and that they could not serve retail.

It was set to come into effect in March 2023 (and has since been pushed back to June 2023 with applicants also enjoying a grace period).

Formal consultations on requirements for virtual asset service providers to offer services to retail will start soon, a government source told CoinDesk.

On Jan 11, Hong Kong’s Securities and Futures Commission (SFC) Chief Executive Officer Julia Leung indicated that the regulator is preparing a list of tokens in which retail investors will be able to invest.

Jason Chan, senior associate at law firm Dechert, told CoinDesk that it is likely the initial list of tokens that exchanges will be able to offer to retail will be very limited because the SFC will first stick to what they’re comfortable with.

The SFC is actively working on a derivatives framework but discussions with the industry have been quite preliminary and unlikely to result in any regulation this year. “If players want to stay in the Hong Kong market they are likely going to strip out some of their functions,” Chan said.

What is expected this year, however, is stablecoin regulation, with the Hong Kong Monetary Authority issuing a discussion paper laying out its position that only license-holding companies will be able to issue stablecoins and offer cross-border payments.

In addition, this year will also see further announcements from the SFC on the issuance of security token offerings and virtual asset structured products.

It’s worth noting that at FinTech Week, not everything was crypto. The government announced it would relax visa requirements to attract more talent. “The bigger picture is really Hong Kong’s position as an international financial center at the macro level,” Khoo said.

Singapore

Singapore is trying to square two goals. It’s famously conservative and protective of consumers but it’s also eager to establish itself as a modern fintech hub.

Faced with corporate taxes on token issuance in Japan, and Hong Kong appearing less than friendly, Singapore’s established regulatory framework for crypto made it seem like a more predictable homebase for many firms.

After FTX’s collapse, a Singaporean Web3 startup founder told CoinDesk that crypto exchanges aren’t casinos to many Singaporeans, but digital banks for on-ramping their salaries and investing in yield products.

“Our banking system is too conservative to offer similar product suites to simple folk,” the founder said. “Or they do, but charge ridiculous fees for needlessly complex financial products in the form of unit trusts and other garbage.” No surprise, then, that Singapore contributed the second-largest chunk to FTX.com’s monthly unique visitors.

Last year saw the implosion of some of crypto’s biggest names in Singapore: Terraform Labs and crypto hedge fund Three Arrows Capital, who were registered there. Toward year’s end, Singaporean police began investigating crypto lender Hodlnaut, one of the casualties of contagion.

These blowups gave more impetus to an already present tendency to prioritize risk management and close consumer protection gaps.

The regulator’s wheels are already in motion. The Monetary Authority of Singapore (MAS) issued key consultations, which closed just before Christmas, on stablecoins and reducing consumer harm to retail.

Consultation conclusions will likely be issued within the first half of this year. Legislative changes will come towards the end of the year or early next year, according to industry insiders. What remains to be seen is whether MAS will incorporate opinions from industry players who have raised concerns.

Among the proposed measures are restricting firms from lending out retail customers’ tokens. The aim of this measure is clear – the collapse of platforms meant consumers had little recourse to recover their assets, as lending and staking is currently unregulated.

While MAS is considering requirements for risk disclosures for lending and staking, the regulator seems to be leaning towards outright prohibition, Nizam Ismail, CEO of Ethikom Consultancy and chairman of the regulatory and compliance sub-committee for the Blockchain Association of Singapore, told CoinDesk. “By putting in place blanket bans, Singapore-based platforms would be disadvantaged in not being able to offer these features,” Ismail said.

The proposal also has implications for decentralized finance. DeFi protocols such as Automated Market Makers (AMM) offer a number of benefits, such as allowing digital payment tokens to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers, Rahul Advani, policy director, APAC, at Ripple, said. The proposed restriction “reduces what you can do with DeFi substantially.”

Banks and brokers can do securities lending and that the outstanding question is why digital assets should be treated differently, he added.

Another area of concern is that MAS may expect service providers to have the same technological risk requirements as banks. “That’s going to be onerous for fintechs,” Advani said. He noted that crypto companies often rely on other service providers which may not have the level of service-level agreements that MAS expects.

On stablecoins, the industry is waiting to see whether stablecoin issuers that are not banks are subject to the same capital requirements. There is also an open question on how MAS will treat issuers of stablecoins used in the local market but not issued in the local market.

Of course, regulations issued by MAS will only apply to licensed firms, which are waiting to see if new regulations still enable them to remain competitive.

“There is a potential risk that unlicensed and unregulated service providers become more attractive venues for the general Singapore public to trade digital assets,” a representative from CoinHako, the country’s leading licensed exchange, told CoinDesk.

This year, Asia may be second only to the European Union, in pushing for clarity in crypto policies.

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