Cryptocurrency regulation refers to the rules that govern how digital assets can be issued, traded, stored, and integrated into financial systems. These regulations vary by country and are constantly evolving as lawmakers respond to technological advances and market risks. Some jurisdictions have established comprehensive frameworks while others are opting for a more laissez-faire approach.
As new technologies and financial instruments emerge at an unprecedented rate, regulators face a significant challenge in establishing regulatory oversight. For example, decentralized finance (DeFi) protocols and privacy coins present unique security challenges that prompt discussions on implementing stricter anti-money laundering (AML) and know your customer (KYC) requirements. In addition, technological progress often outpaces the ability of regulators to establish centralized oversight, creating a window of opportunity for malicious actors.
In the United States, federal regulations largely focus on money transmission and securities trading. As a result, many cryptocurrency businesses are required to register as money transmitters and must comply with anti-money laundering and countering the financing of terrorism (CFT) rules. The US Department of Treasury’s FinCEN has also engaged in high-profile enforcement matters against crypto businesses.
The state of New York has taken a more proactive approach to regulating crypto by requiring business operators to obtain DFPI licenses. In addition, it has created a self-certification process to streamline crypto licensing and introduced large penalties for non-compliance. Other states, such as California, have adopted a more comprehensive regime that imposes restrictions on stablecoin issuance and requires businesses to establish a custodial system and meet capital and compliance standards.
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