Cambridge Study: Inconsistent Terminology Impedes Cryptoassets’ Regulatory Cohesion

The adoption and proliferation of cryptoassets is growing globally, with over 130 countries and jurisdictions publishing formalized guidelines on cryptoasset regulation and legality. However a recent report, the Global Cryptoasset Regulatory Landscape Study (2019), identifies several barriers which restrict global regulatory clarity surrounding digital assets.

Published at the Cambridge Judge Business School in association with Japanese based Nomura Research Institute, the study, assessing the state of global crypto regulation, was led by cryptocurrency researchers Apolline Blandin and Michel Rauchs, in collaboration with several other researchers.

The report highlights an overarching theme of initial coin offering (ICO) and crypto exchange trading regulatory focus, which are comparative with traditional financial instruments and therefore significantly easier to legislate. As a result, terms and processes specific to cryptoassets, such as mining or hardforks, have been subsequently overlooked when drafting new regulation.

However most crucially, researchers found a clear need for standard terminology for cryptoassets from regulators across multiple jurisdictions, to facilitate a coordinated global regulatory framework for digital assets. The authors state that the term ‘cryptoasset’ fails to provide a comprehensive all-encompassing definition for the range of blockchain based financial instruments available today, and as such the fluidity of terminology does the industry a disservice when it comes to streamlined regulation. 

The report compared multiple jurisdictions, and compiled their individual legal terms for cryptoassets, revealing a large disparity in formal definitions for blockchain based financial instruments. Surprisingly, there was a high divergence of terms even within countries belonging to the European Economic Area, evidence that governments and regulators are struggling to keep pace with the rapidly evolving digital asset sector.

Within those jurisdictions that have a high level of domestic cryptoasset activity, approximately 47% have elected to amend existing laws and regulations to meet the rising tide of cryptoasset adoption, rather than create new targeted digital asset laws.

For example, in Canada, regulators issued guidance through their CSA Staff Notice 46-308 (2018) that the same laws governing Canadian Securities may likewise apply to ICO’s and other cryptoasset funds. Likewise, the United Kingdom has confirmed in its Guidance on Cryptoassets (2019) that security tokens will fall within the same regulatory perimeter as regular securities. Finally, in the USA, regulators have consistently shown through case laws that the CFTC has the power to regulate crypto assets as commodities under the existing Commodities Exchange Act.

Instead, the report summarized that the most effective regulatory frameworks came from those jurisdictions which have had a traditionally friendly attitude towards new financial instruments, such as Bermuda, who have enacted their own dedicated Digital Asset Business Act (2018); British Crown dependency Gibraltar, who are currently drafting a legislative framework for tokenized assets and already offer guidelines for DLT providers; and in the Middle East, Abu Dhabi provides bespoke regulations through their Regulation of Crypto Asset Activities in ADGM (2018) guidance documents.

From the report, it’s clear that in the future, it would be advantageous for the wider blockchain industry to formalize definitions for cryptoassets, and work alongside regulatory bodies to assist lawmakers in understanding the complexities of assets issued and distributed via blockchain technology.