Views sought on potential options for crypto regulation
Views are being sought on the current approach to the oversight of certain crypto-asset activities for anti-money laundering and countering the financing of terrorism (‘AML/CFT’) purposes, potential approaches to the regulation of such activities, and how the cost of such regulation should be funded.
The majority of firms conducting crypto-asset related activities in the Isle of Man are registered as designated businesses and are supervised for compliance with AML/CFT legislation.
While it is acknowledged that Fintech innovation can stimulate economic growth and enhance consumer choice, the Island’s National Risk Assessment identifies crypto-related business as posing significant money laundering and terrorist financing risks.
Additionally, mainstream crypto-assets, such as Bitcoin, have seen volatility in value since their inception, and some Initial Coin Offerings and Non-Fungible Tokens have failed as a result of fraud or mismanagement.
Information gathered by the Authority to date, including a Request for Input issued in 2022, reflects general support for regulating certain crypto-asset business. This feedback also recognises that while regulation provides a greater degree of protection for firms and consumers, there would be a substantial cost to implementing a new framework, as well as more robust requirements for businesses.
The Authority is inviting further consideration of its current approach, particularly in light of recent international developments, including the adoption of the Markets in Crypto-Assets (‘MiCA’) Regulation, which is scheduled to come into force across EU Member States on 31 December 2024.
The following options, not all of which are mutually exclusive, have been identified and are highlighted in a Discussion Paper published by the Isle of Man Financial Services Authority on the Isle of Man Government’s Engagement Hub:
- Maintain current approach under the Designated Businesses (Registration and Oversight) Act 2015 (i.e. no change);
- Extend existing ‘investment’ definition to include crypto-assets;
- Introduce a new regulated activity for the operation of a crypto-asset service provider;
- Introduce a new regulated activity for issuing and advising on crypto-assets and similar activities; and
- Introduce a new regulated activity for issuing and managing stablecoins.
Responses will help to inform consideration of how best to position the Island to take advantage of the opportunities and to mitigate the risks associated with crypto-asset businesses.
Bettina Roth, the Authority’s Chief Executive, said: ‘The Discussion Paper is an opportunity to consider international developments in the regulation of crypto-asset activities and provide feedback on the potential expansion of the Island’s regulatory regime. The Authority’s recent stance has been to maintain a watching brief, but we consider that now is the right time to revisit the issue and encourage feedback on potential options. Any future proposal to extend the regulatory perimeter would, of course, be subject to a separate consultation.’
Interested parties can provide feedback by answering the questions in the online survey which forms part of the Discussion Paper. Alternatively, responses can be emailed to Policy@iomfsa.im or sent by post to Sarah Marshall, Isle of Man Financial Services Authority, PO Box 58, Finch Hill House, Bucks Road, Douglas, Isle of Man, IM99 1DT.
The deadline for submissions is 9 April 2024.