How different countries are navigating the uncertainty of digital asset regulation in a complex election year

This year has been called the largest election year in history, as over 60 countries hold national elections. As we approach the end of 2024, it’s impossible to ignore the impact of these elections. In addition to shaping domestic policies and international relationships, these elections create uncertainty concerning future regulation, particularly in the fast-evolving digital assets sector.

At a time when cryptocurrencies and decentralized finance (DeFi) are gaining mainstream momentum, clear and effective regulation is critical for innovation, security, and stability of global markets.

Within this context, the World Economic Forum has launched a new report titled Digital Assets Regulation: Insights from Jurisdictional Approaches, which explores how regulations are taking shape around the world. The report provides a thorough analysis of nine jurisdictions: the EU, Gibraltar, Hong Kong, Japan, Singapore, Switzerland, the UAE, the UK and the US.

These regions count among the most advanced economies for digital asset activity, and their regulatory strategies provide critical insights on navigating future uncertainty.

The rapid development of blockchain technology, cryptocurrency, and DeFi creates opportunities and challenges. Governments are faced with the complex task of striking a balance between encouraging innovation and protecting consumers. The World Economic Forum has previously highlighted the importance of building regulatory foundations for digital assets, and this new report builds on that work. It offers readers a deeper dive into how individual countries respond to these opportunities and challenges.

One of its key findings is the variation in regulatory approaches, which has led to both advantages and unintended consequences. By closely examining each country’s regulatory environment, the report aims to offer policymakers a framework to better understand the direct and indirect effects of their decisions. This includes the potential for fostering innovation, enhancing security, and addressing key risks associated with digital assets.

The report focuses on four major regulatory topics that have emerged as critical issues: Anti-Money Laundering (AML) and Know Your Customer (KYC), regulatory and technical sandboxes, DeFi, and privacy and security. Each of these areas is examined in-depth in the report, revealing both the successes and challenges of current policies.

Within each section below, a few examples are pulled from various jurisdictions, while the full analysis for each country can be found in the report.

1) AML and KYC

One of the most pressing concerns in the digital assets space is the prevention of illicit activities such as money laundering and fraud. Governments around the world have adopted AML and KYC regulations to address these concerns, but the effectiveness of these regulations varies. An estimated $100 billion has been laundered through cryptocurrency since 2019, underscoring the need for robust AML/KYC frameworks.

In the UAE, the Virtual Asset Regulatory Authority (VARA) has introduced comprehensive AML/KYC regulations for cryptocurrency exchanges, requiring strict verification processes to combat illicit activities. Similarly, Singapore's Payment Services Act mandates that cryptocurrency service providers adhere to stringent AML/KYC requirements, with the Monetary Authority of Singapore (MAS) enforcing compliance to mitigate risks. These frameworks are designed to enhance transparency and reduce the risk of illicit financial activities.

There is a growing need, however, for technology-enhanced solutions that can automate compliance, streamline monitoring, and encourage global cooperation to create a more secure digital asset ecosystem.

2) Regulatory and Technical Sandboxes

Sandboxes have become a vital tool for regulators to test new financial technologies in a controlled environment. These allow policymakers and industry leaders to collaborate in designing financial products while mitigating risks.

The UK’s Digital Securities Sandbox is specifically designed to ensure the responsible development of DLT products. This sandbox sets up a predictable infrastructure for market players to collaborate with key agencies, such as the Financial Conduct Authority and Bank of England, while supporting customer protection and market integrity. In 2024, the Hong Kong Monetary Authority launched a sandbox for stablecoin issuers, while the Securities and Futures Commission launched a regulatory sandbox as far back as 2017. These sandboxes have proven successful in promoting growth in the digital assets sector while maintaining regulatory oversight.

3) Decentralized Finance

DeFi is one of the most revolutionary aspects of the digital assets industry. Its decentralized nature eliminates intermediaries, enabling peer-to-peer transactions and the creation of new financial products. However, this lack of central authority presents significant regulatory challenges, particularly in terms of risk mitigation and transparency.

Japan has taken a cautious yet progressive approach through guidelines that prioritize risk mitigation without stifling innovation. The country has implemented a licensing regime for crypto exchanges and DeFi platforms, ensuring that they comply with security and consumer protection standards. Switzerland’s “Crypto Valley” in Zug has attracted numerous DeFi startups thanks to its forward-thinking regulatory processes. DeFi, however, continues to be an area of less regulatory clarity, given its decentralized nature. Jurisdictions require more time to create regulations to govern this evolving space.

4) Privacy and Security

In the EU, The Markets in Crypto-Assets (MiCA) regulation includes strict privacy and security provisions, requiring digital asset service providers to implement robust measures to safeguard user data and protect users against cyber threats.

In the USA, federal regulators are increasingly focusing on digital asset privacy and cybersecurity. With calls for stronger regulations around cryptocurrency, emphasizing cybersecurity audits and compliance checks, steps are being taken against hacking and data breaches. As the report highlights, regular security audits and strong data protection policies will be essential to maintain consumer trust.

While each country’s approach is shaped by its own unique economic, legal, and political context, several common threads can guide the global regulatory landscape for digital assets. These include the need for global cooperation – particularly in AML/KYC efforts; the importance of fostering innovation through sandboxes; the necessity of clear, risk-based frameworks for DeFi; and the prioritization of privacy and security.

Ongoing regulatory discussions will continue to shape the future of the digital assets industry. Policymakers must remain agile, adapting to evolving technologies and market conditions while ensuring that regulations protect consumers and promote financial stability. By examining the successes and challenges of these economies, this new report provides a roadmap for navigating the uncertainty ahead.