Authors: Ananya Kumar, Greg Brownstein & Alisha Chhangani
Since its inception in 2008, cryptocurrencies have become increasingly popular and have become an integral part of the global financial system. Cryptocurrencies have greatly transformed today's financial structure and are changing the next generation of currency and payment methods. However, these changes also come with significant concerns about the potential negative impact of cryptocurrencies on the market, investors, users, and the environment. Governments around the world are seeking to establish regulations to prevent these harms while encouraging the innovative potential of cryptocurrencies.
We studied 45 countries, including G20 member countries and countries with the highest adoption rates of cryptocurrencies. This new study classifies and explains how the largest economies in the world and economies with frequent cryptocurrency activities regulate cryptocurrencies.
45 Countries
We analyzed how 45 countries regulate crypto assets within their jurisdictions. Regulated participants in each country can be cryptocurrency issuers, cryptocurrency exchanges, traditional financial institutions, service providers, or miners.
Legal Status
Each country is designated as one of the following regulatory states: legal (allowing all activities), partially prohibited (not allowing one or more activities), and fully prohibited (restricting all activities).
Regulatory Categories
Countries regulate actors in the cryptocurrency space using tax policies, requirements to combat money laundering and terrorist financing, consumer protection rules, and licensing and disclosure obligations.
Key Findings
Among the 45 countries we studied, cryptocurrencies are legal in 20 countries, partially prohibited in 17 countries, and fully prohibited in 8 countries. In the 10 G20 countries that account for over 50% of global GDP, cryptocurrencies are fully legal. All G20 countries are considering regulating cryptocurrencies.
Regulatory changes in cryptocurrency assets are happening rapidly. In the countries under review, nearly 75% of countries are making significant adjustments to their regulatory frameworks, often through new tailored legislation targeting the cryptocurrency market.
Stablecoins, typically backed by fiat currency, are the next frontier of cryptocurrency regulation. The EU, US, UK, and Thailand are considering regulating stablecoins. In Mexico, financial institutions are not allowed to issue stablecoins.
Emerging market economies lag behind developed economies in regulatory development. In the developed economies studied, 64% of countries have established regulations related to taxation, anti-money laundering/counter-terrorist financing, consumer protection, and licensing. In contrast, only 11% of countries in emerging market economies have established relevant regulations.
Experimentation is widespread. Countries use regulatory sandboxes for testing and collaborate with the private sector. Japan has established an association of cryptocurrency exchanges and issuers in an attempt to encourage self-regulation. Canada, Italy, Mexico, and Saudi Arabia have also developed regulatory sandboxes.
Consumer protection rules are relatively lagging. In the countries under review, only one-third of countries have established rules to protect consumers. These rules include advertising regulations, cybersecurity requirements for service providers, and investor authentication, among others. These rules can successfully prevent fraud.
In the countries under review, the relationship between cryptocurrency adoption rates and regulatory restrictions is generally weak. Among the top ten countries in cryptocurrency adoption rates, six have implemented partial or full bans.
Cryptocurrency exchanges have faced increased scrutiny since the collapse of FTX. Global regulatory bodies are aiming to promote responsible industry standards to prevent the negative impacts of regulatory arbitrage.
In the 45 countries analyzed, over 90% of countries, in addition to cryptocurrency regulations, also have active central bank digital currency (CBDC) projects. This indicates that countries are exploring CBDCs while adjusting and updating cryptocurrency regulations.
Role of Global Governance Institutions
In addition to promoting global cooperation in cryptocurrency asset regulation, standard-setting bodies also play a crucial role in creating governance and industry standards.
Financial Stability Board (FSB)
The Financial Stability Board's members primarily include G20 countries, the International Monetary Fund, and other international institutions, as well as standard-setting bodies such as the Bank for International Settlements and the International Organization of Securities Commissions.
The Financial Stability Board focuses on the financial stability aspects of crypto assets and promotes international cooperation between financial authorities and standard-setting bodies to ensure uniform regulatory standards. It has issued regulatory recommendations for cryptocurrencies and stablecoins.
Financial Action Task Force (FATF)
The Financial Action Task Force has 38 member countries and a large number of regional and international institutions. Its broader network includes 200 jurisdictions that have agreed to implement anti-money laundering/counter-terrorist financing standards.
In 2019, FATF provided a global framework for anti-money laundering for all virtual asset service providers, listing 15 recommendations for improving anti-money laundering/counter-terrorist financing regulations. These recommendations were updated in 2021. FATF also reviews the implementation of its recommendations annually. The latest review found that most jurisdictions still need to adopt, implement, and enforce the recommendations. Recommendation 15, known as the "travel rule," requires virtual asset service providers to share beneficiary and originator information for all transactions. In practice, this rule is controversial, and only a few jurisdictions have implemented it.
Basel Committee on Banking Supervision (BCBS)
The Basel Committee on Banking Supervision has 45 members, consisting of central banks and banking supervisory authorities from 28 jurisdictions.
The Basel Committee is the standard-setter for global banking prudential regulation. It has provided guidance for the prudent treatment of banks' exposure to crypto assets. This guidance informs capital requirements, liquidity requirements, leverage ratios, and supervisory functions. It is part of the Bank for International Settlements.
International Organization of Securities Commissions (IOSCO)
The International Organization of Securities Commissions has 131 members, including securities and derivatives regulators from 131 countries, 34 regional and international institutions, and 72 non-governmental entities such as self-regulatory associations, stock exchanges, and financial market infrastructures.
IOSCO is the standard-setter for global securities market regulation. In 2020, it released guidelines for regulating cryptocurrency exchanges. In 2022, it agreed to establish a board-level FinTech special working group, currently chaired by the Monetary Authority of Singapore (MAS). This working group focuses on market integrity and investor protection issues, with two broad workstreams covering cryptocurrencies and digital assets, as well as decentralized finance.
Committee on Payments and Market Infrastructures (CPMI)
The Committee on Payments and Market Infrastructures consists of central banks from 28 countries.
The CPMI is the standard-setter for global payment, clearing, and settlement arrangements and serves as a platform for international cooperation among central banks. Its work in the area of crypto assets includes cross-border payment workstreams and collaboration with IOSCO on stablecoin market infrastructures.
Egmont Group
The Egmont Group consists of 166 financial intelligence units from around the world.
The Egmont Group is a coordinating body among 166 financial intelligence units. It is a major platform for financial intelligence sharing, supporting domestic and international anti-money laundering/counter-terrorist financing measures. The Egmont Group's Information Exchange Working Group aims to promote bilateral and multilateral information sharing, enhance members' information technology capabilities, and is currently undertaking a project on the risks of emerging financial technologies, virtual currencies, and anti-money laundering/counter-terrorist financing standards.
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