Bermuda has been ranked second in the world for its regulation of the digital-asset sector.
The first-of-its kind Global Crypto Regulation Index has been launched by Solidus Labs, which bills itself as the crypto-native risk-monitoring and market integrity leader.
Solidus labs said that the index is “providing a point-in-time snapshot of where digital-asset regulations currently stand, and ranking key countries and their approaches to regulation that aims to both protect consumers and encourage innovation”.
Bahamas was ranked ahead of Bermuda in the 42-country listing by the New York-based company.
Rounding out the top five ranked countries were Malta, Switzerland and Serbia.
Solidus said that its GCR Index is introduced at a pivotal moment for the industry, as digital-asset volatility, market integrity and consumer protection pose major concerns for investors and regulators — and as governments across the globe increasingly respond to the evolution of crypto markets through legislative, enforcement, regulatory and/or policy actions.
Kathy Kraninger, VP of regulatory affairs at Solidus Labs, formerly led the United States Consumer Financial Protection Bureau.
She said: “While many would expect leading economies to spearhead digital-asset regulation, many of those countries rely on their existing regulatory regimes whereas some smaller countries have been quick to adopt comprehensive frameworks tailored to digital-asset markets.
“A key theme consistent in our findings is consensus that regulators view market manipulation as a core risk and that market surveillance is necessary to protect users, investors and economies.”
Solidus said there is a robust methodology behind the rankings, providing a weighted 0-5 score for each country in five categories:
• The Legal Status and Environment category assesses whether digital-asset entities and participants can openly operate in a country or if access is limited in some way (35 per cent weighting).
• The Regulatory Framework category considers whether the country has a regulated digital-assets market with clear rules and regulatory oversight to ensure consumer protection and facilitate innovation (30 per cent weighting).
• The Market Surveillance and Anti-Market Manipulation Rules category dives deeper into the substance of each country’s regulatory regime, ranking its inclusion of market integrity aspects (15 per cent weighting).
• The Registration Requirements category addresses another aspect of the regulatory regime, assessing licensing and registration processes and requirements (10 per cent weighting).
• The AML/CFT Requirements for Digital Asset Service Providers category considers a country’s AML/CFT regime (10 per cent weighting).
Bermuda got top marks in the legal, regulation and registration categories, and marks of four in the surveillance and AML/CFT categories for an overall score of 4.75.
The Bahamas got top marks in all but the AML/CFT category, where it received a ranking of four. Its final score was 4.90.
In general, Solidus said, top-tier countries offer clear and comprehensive regulatory frameworks for digital assets that are tailored to meet new and unique challenges and opportunities that apply to these markets.
The report sheds light on possible gaps between adoption and regulation, showing that they do not always go hand in hand, potentially posing heightened risk.
Asaf Meir, the founder and chief executive of Solidus, said: “The future of the crypto industry, and all of its potential to enable more accessible, transparent and efficient markets, depends on constructive regulation and market participants’ ability to comply with rules through advanced risk-monitoring and compliance programmes.
“We’ve created this report to help our many clients and partners, and the industry as a whole, navigate the fast-evolving regulatory landscape, utilise the current market downturn to optimise, and build better and safer infrastructure that would satisfy these increasing standards.”
Even against the backdrop of today’s digital-asset space, Solidus’s findings, and insight taken from direct discussion with regulators, show that many countries are rapidly developing regulatory regimes tailored for digital assets, but have not yet implemented complete frameworks, the company said.
Many mid-tier-ranked countries initially responded to digital assets’ increasing adoption through enforcement rather than policy action. Some of these countries are now moving towards whole-of-government frameworks, although legislative, regulatory and policy initiatives will take time to progress.
Acknowledging this sentiment, Solidus Labs and many other industry participants are accelerating efforts to engage with each other and regulators to promote progressive and constructive regulatory regimes.
In February, Solidus Labs initiated and co-founded the Crypto Market Integrity Coalition, which now includes Coinbase, Circle, Anchorage Digital, Gemini, Robinhood and 33 other leading firms, in order to advance market integrity standards.
The governing legislation in Bermuda for the sector is the Digital Asset Business Act 2018.
Kathy Kraninger, VP of regulatory affairs at Solidus Labs
Asaf Meir, Solidus founder and chief executive