The crypto market is growing at a rapid pace, with governments and various regulatory bodies actively trying to study and keep up with the growth. Whi
The crypto market is growing at a rapid pace, with governments and various regulatory bodies actively trying to study and keep up with the growth.
While many policymakers around the globe have come to realize that banning the crypto market is not an option, many are yet to come up with a formidable framework to regulate the nascent market in their respective countries.
Even some of the most crypto-friendly countries have only managed to regulate parts of the crypto market such as crypto trading while a significant chunk of crypto-related activities still remains a gray area.
Thus, for a rapidly growing industry like crypto, which often remains under heavy government scrutiny, surviving becomes a complex task. This is where self-regulatory organizations (SRO) come into play.
Self-regulatory organizations have complete authority in developing policies, maintaining guidelines, enforcing policies and resolving conflicts. Although self-regulatory groups are private, they are subject to government scrutiny; if there is a discrepancy between the regulations of the two bodies, the government agency takes precedence.
Bradley, founder of crypto trading platform Y-5 Finance, told Cointelegraph:
“SROs are becoming more commonplace within countries lacking any official cryptocurrency regulation. Technology such as blockchain does not fit easily into traditional regulation and proponents of SRO state that they can help integrate a new complex industry into existing traditional agencies. SRO’s are self-funded and self-governed, and some have received criticism for taking the side of their members rather than the public.”
An SRO is a non-governmental organization formed by participants of a particular industry or sector to assist in the regulation of enterprises in that area. These SROs facilitate collaboration between industry experts and government policymakers and try to fill the regulatory vacuum until a widely recognized framework comes into play.
Financial Industry Regulatory Authority (FINRA), is a prime example of an SRO that works in accordance with the United States Securities and Exchange Commission (SEC) to enforce the regulatory bodies’ broader objective. Similarly, several crypto-based SROs have cropped up in various jurisdictions that have helped the crypto industry thrive.
Tony Dhanjal, head of tax at crypto taxation platform Koinly, told Cointelegraph:
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“In the absence of official or government-backed regulation, self-regulation and governance have been witnessed before in other industries. it demonstrates a degree of intent and responsibility toward ‘protecting investors.’ This further fuels confidence in the industry and accelerates innovation. SROs aim to ‘foster consumer protection and market integrity’ — they certainly seem to be making the right sounds.”
How SROs have helped across the globe
Over the past year, the crypto industry has managed to create the highest number of unicorns, or startup firms worth over $1 billion, as a significant chunk of investment from the traditional market has flowed into the crypto industry. The growing confidence of traditional markets in the crypto industry has been possible in part because of the self-regulatory measures that the industry has incorporated in the absence of government regulation.
Justin Newton, CEO of leading compliance digital identity verification technology firm Netki, told Cointelegraph:
“Eight years ago, I forecasted that regulations were coming to the cryptocurrency space, it was just a matter of when and under what conditions. It was clear even then that the industry would be best served by getting out ahead of regulators in terms of reducing risks and providing appropriate Anti-Money Laundering controls. We are more likely to get good frameworks if we design them rather than if we wait for regulators to force the issue.”
He went on to add that the crypto industry needs to be more proactive in offering solutions to the issues regulations attempt to address rather than fighting the inevitable interference from policymakers. He said that “self-regulatory bodies are a specific kind of organization that is created and empowered by legislation and regulation, which may not be the right fit for our industry, particularly due to the inevitable cross-border nature of the businesses participating in the ecosystem.”
There has been a global push for crypto exchanges to self-regulate. Japan and South Korea are considered pioneers of the self-regulatory industry and were among the first nations to establish SROs for crypto.
The Japan Blockchain Association (JBA) boasts 127 members and 35 crypto exchanges among them. It sets standards and promotes the development of a sound business environment and user protection system of virtual currency and blockchain technology. Over the years, the JBA has worked toward bringing awareness around the…
cointelegraph.com