The Paths to Crypto Asset Regulation and Innovation

The Paths to Crypto Asset Regulation and Innovation 

Sagar Sarbhai is Head of Regulatory Relations for APAC and the Middle East, Ripple
; Ryan Zagone is Director of Regulatory Relations, Ripple

Regulatory certainty is a critical prerequisite and catalyst for technology adoption in financial services. Certainty makes clear the rules of the road and spurs investment and innovation. Without it, investments may not be made to develop technologies for fear that rules may be developed that render their approaches obsolete, or that give other technologies or approaches competitive advantages leading to sunk costs.   

While the path to clarity may not always be linear, evidence that regulatory certainty can support safe innovation is already strong in the crypto asset sector. We have several working examples of how to address the natural risks that emerging technologies may pose, while also enabling innovation that countries and governments can leverage in assessing their own rules. 

Not all jurisdictions engage the supervision of fintech from same starting point. Some countries have no legacy regulation, while others may have already imposed temporary or blunt measures. Some countries may have strong consumer adoption or fraud, while others see generally low interest and activity. 

Regardless of the starting point, there are many paths to a workable, balanced framework, one that addresses consumer and market risks while supporting innovation, efficiency and competition. Finding this equilibrium — ensuring balanced policy decisions are made — has never been more important. Crypto assets will serve a role in the next generation of financial infrastructure. Countries that lead on regulatory clarity will have a key advantage in the global marketplace. 

Thailand and Abu Dhabi offer two good examples of governing bodies that have adopted a balanced regulatory framework. These examples can serve as guideposts in the journey toward globally coordinated rules for crypto assets. 

Thailand’s path from protectionism to promotion

For more than a decade, Thailand has encouraged investment and education in technology. This creation of a tech-literate society resulted in strong interest in the burgeoning crypto asset market from both consumers and exchanges. The government started to worry that consumers were investing in volatile markets and that the country’s banks could be exposed to fraudulent or flaky Initial Coin Offerings (ICOs).

In early 2018, these concerns led the Bank of Thailand to ban the country’s banks from offering services to crypto asset exchanges—from investing and trading to offering cryptocurrency exchanges and advising clients on the risks and opportunities in the sector. The sweeping legislation came from well-intentioned concerns about money laundering and terrorism-financing. But blanket bans on technology that do not distinguish cryptocurrencies, their usage and individual features, hamper innovation. And in this particular instance, prevented the emergence of  positive real-world use cases that could benefit middle-income clients and financial institutions alike. 

Over the following year, policy makers began to recognize how this technology could empower financial inclusion through lower cost remittances and other use cases. This recognition made it clear that the ban was not the best approach. (See 2014 World Bank data below):


 Thailand quickly began working to formulate official policies. Just a few months later in May, the Thai government issued a royal decree that created a classification for crypto assets and a licensing framework for exchanges. The regulations include protections for consumers as well as for financial institutions, and a requirement that entities petition regulators where they seek to participate in crypto-markets as exchanges and other intermediaries.

 The government’s shift to a pragmatic and collaborative approach has allowed it to better protect consumers and financial institutions, while positioning Thailand as ASEAN’s premier crypto asset hub. Thailand is already seeing an increase in retail and institutional participation in the crypto asset market, including foreign investors. 

Abu Dhabi: driving interest through a comprehensive framework

In contrast to Thailand, Abu Dhabi had little market demand for crypto assets, not from consumers or organizations. But Abu Dhabi Global Market (ADGM) – an international financial center based in one of the city’s free zones – has a goal of becoming the Middle East’s fintech hub.

 Without the need to react to market risks, ADGM policymakers have taken a thoughtful approach, learning from the experiences of other regulators. The result is the most comprehensive crypto asset regulation framework in practice today.

 Abu Dhabi eschews general prohibitions and indiscriminate green-lighting frameworks.  Instead, all crypto asset activities are subject to high standards but dealt with on a case-by-case basis, depending on the nature of the product and service. When it comes to risk, ADGM goes beyond simply addressing anti-money-laundering and counter-terrorist financing to also tackling technology governance, anonymous currencies and custody management. The regulation also provides guidance to banks and other institutions on leveraging crypto assets. 

From a standing start, ADGM has created a crypto asset framework for promoting innovation that is in line with Ripple’s three-pronged approach: applying AML rules, ensuring consumer protection and implementing safety and soundness measures, such as cyber security, risk management and capital requirements.  

U.S. leadership and global coordination

Establishing clear rules of the road for the onboarding an oversight of emerging technologies allows countries to cultivate their own expertise and adoption of a new technology. 

As other commentators are frequently observed, the United States was a clear example of this with the Internet. America released a policy framework for electronic commerce in the 1990’s, which later became the global standard. The U.S.’s policy leadership gave an advantage to domestic companies — a primary reason why today’s major Internet and technology companies are U.S.-based. 

With blockchain and crypto assets poised to be an important part of future infrastructure, many countries have incorporated past U.S. approaches to provide regulatory clarity in order to capture market share, and build their own competitive advantages. Japan was an early leader, with Thailand, Abu Dhabi, Switzerland and the U.K. in hot pursuit. 

For the United States to remain competitive, the country will, in our view, have to proceed with a coordinated, holistic approach for crypto regulation. Otherwise, it risks over time becoming more reliant on foreign technology and expertise for payments than it has since the rise of the U.S. dollar as the international currency. To do so will require the formulation of not only sound rules, but a thoughtful, efficient, and robust framework for onboarding new technologies and providing sustained oversight.  It will also require coordination with other major financial centers in order to learn from their experiments, and export best-practices abroad.

This kind of strategic government approach will position the U.S. to maintain its position as a leader in technology innovation, and, perhaps, put the country in the driver’s seat as crypto policy becomes globally coordinated.

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