Change is brewing in the world of digital assets—and most of it is encouraging. Recent news and developments this past year signal that the industry is maturing—with sophisticated financial institutions, central banks and global standard setting bodies all leaning into the discussion. This bodes well for smart and transparent digital asset regulation being adopted around the globe.
The real question is, which jurisdictions will lead this important change?
What Smart Regulation Looks Like
The FCA starts with a basic principle: regulation of blockchain and digital assets should protect the integrity of the market and consumers, on the one hand, while providing clarity to the industry, on the other. From there, the FCA sets a very clear taxonomy/classification ensuring that market participants understand which rules apply to which assets.
The FCA categorizes digital assets according to their primary use, such as utility tokens, exchange tokens or security tokens, but only security tokens that represent a stake in a business are subject to securities regulation. Under the UK framework, these securities laws don’t apply to the other tokens, despite the fact that some purchasers may buy those tokens purely for speculative purposes.
To lean into a bit of 90’s nostalgia, this would be akin to buying a Beanie Baby during their massive heyday, with the hope that they’ll eventually increase in value. That doesn’t make Beanie Babies a security, though. Beanie Babies are still Beanie Babies and exchange tokens are still exchange tokens.
The UK is not the only jurisdiction that is setting transparent regulation. Japan, Singapore, Switzerland and the UAE have also developed practical regulatory frameworks. Noticeably lagging behind, however, is the United States. This hurts not only the ability of American companies to compete, but also presents national economic and security concerns.
Why the U.S. Is Falling Behind on Digital Asset Regulation
In the U.S. the Securities and Exchange Commission (SEC) has seized control of digital asset oversight. The SEC initially took ownership because of the need to stop the abuses seen during the Initial Coin Offering (ICO) craze. But having successfully stopped these dangerous ICOs, which is positive for the maturity of the industry, the SEC is now…