Harmonised digital assets rules can stop the race to the bottom

An international “golden standard” is needed to solve the ongoing migration of crypto firms to more “loosely” regulated jurisdictions, according to panellists at City Week UK on July 2. They agreed this “race to the bottom” could be halted by cross-border harmonised rules on digital assets.

Max Bernt, managing director for Europe at TaxBit, said: “Cryptos are always a borderless phenomenon, right? So there’s always the threat of a race to the bottom, where entities move to countries with the least stringent regulatory regimes.”

The panellists believed imbalanced licensing rules were the main incentive for this move towards deregulation. For example, the EU’s Markets in Crypto-Assets Regulation (MiCA) “strictly regulates” the sector, outlining several areas with “very specific” rules, while the US GENIUS Act is moving in a “different direction” on stablecoin, said Bernt.

The Organisation for Economic Co-operation and Development (OECD) Crypto Asset Reporting Framework (CARF) was cited as an example of “global gold-standard minimum standards”, extending the existing Common Reporting Standard (CRS) to crypto assets.

Imbalanced landscape

“There’s a saying that goes something like this: the US innovates, Asia replicates and Europe regulates,” said Morten Bech, head of the Bank for International Settlements (BIS) innovation hub.

However, Hong Kongʼs Securities and Futures Commission (SFC) has its own take: “same business, same rules”. It is applying the same framework from traditional finance (TradFi) to decentralised finance (DeFi).

SFC director of intermediaries Elizabeth Wong explained: “This means if their activities are similar to those of a securities broker, we regulate them just like brokers in traditional financial markets, but with some fine-tuned requirements specific to the risks posed by virtual assets.”

Migration of crypto firms

While MiCA covers all 27 member states of the EU, balancing enforcement actions among national authorities remains important to avoid regulatory arbitrage, according to policy recommendation for crypto by the International Organization of Securities Commissions (IOSCO).

Many crypto giants have been migrating to Europe in recent weeks. Neo-broker Robinhood obtained its first-ever crypto licence from the Bank of Lithuania (BoL) on June 2, expanding its compliance territory through the acquisition of crypto currency exchange BitStamp. It is also opening its first European crypto trading hub in the jurisdiction.

Gemini also secured a MiCA licence from the Malta Financial Services Authority (MFSA) on June 21, which also issued licences to OKX and Crypto.com in January 2025.

Viable stablecoin rules

Speaking at the conference, Sasha Mills, executive director of financial market infrastructure at the Bank of England (BoE), revealed that the central bank is also proposing more “viable” requirements for non-systematic stablecoins.

“The stablecoin landscape has moved on a lot since 2023, and we have considered those changes alongside industry feedback,” she said. “We are now minded to allow for a proportion of backing assets to be remunerated. We consider that this should happen by allowing a proportion of backing assets to be invested in High Quality Liquid Assets (HQLA).”

The proposed regime aligns with the FCA’s “balanced” approach to stablecoins in the consultation paper on stablecoins issuance.

However, the BoE noted that holding limits in systemic stablecoins remains important to mitigate financial stability risks — “at least in the transition period” — as proposed in the discussion paper published in 2023.

“If implemented, these limits would likely be in the region of £10,000 to £20,000 for individuals and £10 million for businesses,” said Mills.

More than AML standards

“[Current] released guidance on virtual asset service providers are mainly driven by anti-money laundering (AML) standards aimed at creating a global minimum standard and consensus,” said TaxBit’s Bernt.

The panellists generally agreed that regulators need to move away from only considering AML standards when regulating digital assets. Currently, the UK Financial Conduct Authority (FCA) only has Money Laundering Regulations (MLRs) and financial promotion regulations in place for the digital assets sector.

The SFC’s Wong offered a potential solution: “In Hong Kong, what we’ve been doing since 2018 is regulating the crypto space primarily from an ‘investor protectionʼ perspective, rather than from an AML or payments perspective.

“This means we are a bit different from some other jurisdictions, which use payment licences or AML registrations to regulate crypto.”

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