G20 DIGITAL ASSET REGULATION tracker

The digital asset market witnessed rapid growth in a few short years, with the global market capitalisation of digital assets increasing from $200 billion in 2017 to over $1.22 trillion in 2023. The growth in value attracted wide interest from investors, businesses, and users.  

Along with economic and innovative opportunity, however, the digital asset market also presents risks and challenges. The increased potential for illicit activities such as money laundering, tax evasion, and financing of terrorism accompany the rising popularity of digital assets. In addition, there are also risks surrounding consumer protection, financial stability, market manipulation, and cybersecurity. As a response, authorities globally are working to establish regulatory frameworks to address the risks posed by digital asset markets.  

To trace developments in the rapidly evolving field of digital asset regulation, the Esya Centre has created the Digital Asset Regulation Tracker. The tracker provides an overview of the status of digital asset regulation in G20 nations. The idea is to create a ready reckoner for stakeholders interested in digital asset regulation in G20 countries. 

Map Guide

The interface of the map below is interactive. On the top-left corner you have a drop-down menu to select different regulation categories from. You can click on any marker to view more information under that particular category of regulation.

METHODOLOGY

The tracker relies on both primary and secondary sources. Primary sources include legislation, regulations, consultation papers, and guidance notes issued by Governments and regulatory authorities in member nations. Secondary sources include speeches by officials, news reports, and legal analyses of the relevant laws and regulations.  

The regulatory themes and sub-themes covered by the tracker derive from research and recommendations on digital asset regulation published by the Financial Stability Board, the International Monetary Fund, the Financial Action Task Force, and the Organisation for Economic Cooperation and Development. Recommendations made by these international organisations will shape discussions regarding digital asset regulation at the G20. Hence, their suggestions serve as the basis for a relevant framework to assess the status of regulation in member nations.  

An overview of the regulatory themes and sub-themes discussed in the tracker is provided below.

GOVERNANCE

  1. Legal Status: Legalisation or legal recognition of digital assets is the first step to regulation. Bans, on the other hand, can prompt offshoring of digital asset activity or movement to black or grey markets, which may confound enforcement efforts. The absence of legal recognition creates uncertainty but does not operate as a ban.

  2. Classification of digital assets: The manner in which digital assets are classified and defined determines the regulatory framework applicable to them. Member nations can classify different digital assets as securities, commodities, and other financial products or develop sui-generis classifications and definitions.

  3. Licensing of digital asset service providers: Licensing is an important step in the regulation of digital asset service providers as it allows authorities to exercise effective supervision over their activities and address potential risks that may emerge form digital assets. Approaches include extending existing regulatory and licensing frameworks, such as those for securities and commodities, to digital asset service providers or the creation of new and specific licensing regimes.

  4. Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT): Most digital asset transactions tend to be pseudonymous, making them a ripe instrument for illicit financing. As such, AML regulations requiring digital asset service providers to collect and report transaction data and conduct know-your-customer procedures are essential to counter such activity.  

FISCAL & MONETARY

  1. Taxation of digital assets: Digital assets are a novel asset class, and thus, their treatment under different tax regimes, such as income tax and value-added tax, requires clarification by the government and relevant authorities. Ambiguity over the tax treatment of digital assets can impact innovation and lead to the use of digital assets for tax evasion purposes.

  2. Capital Controls on digital assets: Digital assets present a relatively seamless way to move funds into and out of a country. Hence, member nations may choose to extend existing capital control frameworks to digital assets in order to curb their use for foreign transactions.

  3. Risk management requirements: Digital asset service providers play an important role in digital asset markets as they facilitate the sale, purchase, exchange, and custody of digital assets. Hence, robust risk management requirements that ensure the prudential management and safeguarding of user funds, are an essential aspect of a digital asset regulatory framework.

CONSUMER PROTECTION

  1. Grievance Redressal: Consumers are subject to several risks when transacting with digital assets, such as financial fraud and failed transactions. The creation of an effective framework for the redressal of such grievances is, therefore, an important aspect of a regulatory framework for digital assets.

  2. Data Protection/Information Security: Some digital asset service providers collect personal consumer data, especially financial data, as part of their operations. Resultantly, it is vital that member nations either determine how existing privacy regimes apply to such digital asset service providers or evolve privacy frameworks specific to digital assets. Moreover, digital assets are subject to potential cyber risks, which can be mitigated by establishing robust information security requirements and standards.    

  3. Advertising of digital assets: Unregulated promotion and marketing of digital assets can lure consumers into investing in high-risk products they do not completely understand. It is, therefore, vital for member nations to regulate the content and form of digital asset-related advertising and promotion.

  4. Consumer Awareness: Digital assets are a novel asset class and bring new opportunities and risks that consumers are often not aware of. To ensure consumer protection, member nations can implement regulations that ensure that consumers are provided with accurate information and made aware of the risks and opportunities associated with different digital assets.

  5. Investor Protection and Insurance: Consumer deposits with traditional financial institutions, such as banks, are typically insured and safeguarded by Governments up to a certain threshold. The extension of such safeguards to digital asset deposits is an important regulatory decision that member nations need to make as the exposure of retail users to digital assets grows.

  6. Restrictions on digital assets: Restrictions on the sale, exchange, and issuance of digital assets are imposed to address financial stability risks and prevent harm to consumers. The nature and severity of restrictions imposed can impact the growth of the domestic digital asset industry and lead to offshoring.