- The United States approach is more of a complex regulatory framework
- In contrast, the European approach is more harmonious and unified.
- Considering all the challenges and prospects, the European Union’s approach appears to be much more promising.
For regulators, the emergence of blockchain technology and crypto assets has presented new difficulties. Authorities struggle to find a consistent model for regulating the industry as the global crypto-asset market grows.
To regulate crypto assets, the United States and the European Union have chosen different strategies, each of which has advantages and disadvantages.
The US Approach: Balancing Innovation And Investor Protection
In a setting characterized by a complex regulatory framework made up of federal and state regulations, regulatory efforts in the United States have been concentrated on striking a delicate balance between fostering innovation and safeguarding investors.
The Securities and Exchange Commission (SEC), the federal agency in charge of regulating the financial markets, has taken the lead in monitoring the development of the phenomenon to clarify the classification of assets that can be classified as financial instruments (securities). The SEC sought to prevent fraudulent initial coin offerings and ensure that market participants acted by applicable securities offering laws through the adoption of several enforcement actions and guidelines.
The regulatory environment is still fragmented, though, with various state and federal agencies continuing to have exclusive jurisdiction over particular aspects of the phenomenon. Due to inconsistent regulation and the resulting numerous uncertainties, this decentralized and disorganized approach has slowed innovation in the United States and hampered market growth.
The Regulatory Approach: Building An Organic Regulatory Framework
The European Union, in contrast to the United States, has adopted a more unified approach to the regulation of crypto-assets, most notably through the adoption of the MiCAR Regulation.
At the same time, the European Union has included crypto-assets in the purview of AML regulation, sometimes posing organizational and implementation challenges for market participants. This has already happened with the Fourth and Fifth AML Directives, as well as, later, with the Transfer of Funds Regulation. The primary requirements of the European Union’s regulations are that exchanges and crypto wallet providers follow stringent anti-money-laundering requirements and implement the so-called travel rule, which essentially requires the traceability of financial transactions involving crypto-assets.
The adoption of a unified strategy allows for the creation of legal certainty, the promotion of international business, and the encouragement of investment in the crypto-asset market. On the other hand, the adoption of strict requirements results in higher compliance costs and may limit market competition by eliminating operators who are not sufficiently structured to comply with the new regulatory requirements.
Challenges And Prospects
It is extremely difficult for the US and the EU to effectively regulate crypto-assets. Because cryptocurrencies are decentralized, it is challenging for one government to have complete control over the market. Inconsistent approaches and gaps in legal certainty have resulted in the US due to a lack of centralized regulation, but operators have not been subjected to any disproportionately onerous restrictions. On the other hand, the organic regulatory framework adopted by the European Union appears to be much more promising, but difficulties remain in the pace of implementation and potential barriers to achieving complete member-state harmonization during the implementation phases.