The Isle of Man is strengthening digital asset regulation and including digital currencies in its investment definition, which will subject virtual asset service providers (VASPs) to stricter financial industry regulation.
The Isle of Man is currently a British Crown Dominion in the Irish Sea.
VASPs must register with the Financial Services Authority (FSA) and comply with the island’s AML and CFT regimes. Under this set-up, there are 22 companies registered with the authorities.
However, apart from AML, VASPs are not subject to any other regulations, including business conduct or prudential duties.
The FSA is keen to change this approach and strengthen its oversight of the digital asset industry. In a recently published paper, authorities outlined three possible approaches and asked the public for feedback on the best approach.
The first option is to expand the existing definition of ‘investment’ to include ‘cryptocurrencies’. This approach removes existing ambiguity about which tokens fall within the regulatory framework and “thereby eliminates the risk of regulatory arbitrage.”
But authorities say this approach has serious drawbacks, including imposing burdensome regulations on VASPs that initially target much larger investment businesses.
Another approach would be to define VASP as a stand-alone regulatory activity, mirroring the approach adopted by the EU with MiCA.
This approach “addresses a more specific, consumer-centric type of crypto asset activity. Additionally, regulatory requirements can be tailored to the sector in question.”
The FSA observed that MiCA is more nuanced and more accurately addresses specific elements of digital assets, such as trading, custody and market making, than any other approach. There are also provisions against insider trading, market manipulation and abuse. However, the Isle of Man is not a member of the EU.
Commenting on the proposals, FSA CEO Bettina Roth said public feedback would give the authority a better idea of investor concerns and how best to address them.
“The authority’s recent position has been to maintain observational briefings, but we believe now is an appropriate time to re-examine the issue and encourage feedback on potential options. Of course, any future proposals to expand the scope of the regulation will have to undergo separate consultation,” she said.
See: Digital currency regulation and the role of the BSV blockchain
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