The Isle of Man, a self-governing British Crown Dependency and a renowned offshore financial center, opened a public consultation on the future of its crypto regulation.
On Feb. 13, the local Financial Service Authority (FSA) published a discussion paper on the oversight of “certain crypto-asset activities” for anti-money laundering and countering the financing of terrorism (AML/CFT) purposes.
According to the press release, the Island’s National Risk Assessment identifies crypto-related business as posing significant AML/CFT risks, and this needs tighter regulation, although currently, the “majority of crypto firms” on the island are already registered and supervised for compliance with AML/CFT legislation.
The FSA discussion paper lists several options for the potential crypto regulation approach, but they are not all exclusive.
The first is to stick with a current framework regulated by the Designated Businesses (Registration and Oversight) Act 2015. The FSA believes this option would not mitigate the risks to consumers (some of whom are retail customers) who would continue to be exposed to a risk of loss.
The second option is to extend the existing “investment” definition to include crypto-assets. As the paper specifies, this approach has the benefit of removing ambiguity between “tokens” covered by the “investment” definition and those not, thereby “removing the risk of regulatory arbitrage.” However, in that case, crypto firms operating on the island would have to meet the qualification requirements for investment business, which were not designed for the crypto market.
Other options consider the creation of separate frameworks for crypto asset service providers (CASPs), crypto assets issuers and stablecoin issuers. According to the paper, these approaches could broadly follow the European Union Markets in Crypto-Assets Act (MiCA), which will apply to all EU members from December 2024.
The Isle of Man has never been a part of the EU. However, the attractiveness of directly implementing MiCA lies in the fact that it doesn’t require regulators to oversee or regulate the markets themselves in the same way as securities markets. Due to the costs and obligations of establishing and maintaining such an oversight, the Isle of Man is explicitly interested in abstaining from it.