Traders peg UAE and EU as optimal regulatory environments for crypto trading

Acuiti report found that majority of traders believe the main responsibility for monitoring and trade reporting in crypto trading lies with trading venues.

Traders have pegged the United Arab Emirates and Europe as the two most optimal regulatory environments for crypto trading, an Acuiti report has found. 

Just under 40% of the 200 traders surveyed thought the UAE was developing the most optimal regulation for the trading of crypto assets, followed closely by 35% that voted for the EU.

The survey follows the announcement by the UAE of the early establishment of a new regulator – the Virtual Assets Regulatory Authority – “which has issued regulations governing the issuance, trading and custody of digital assets”.

Only 19% of the traders surveyed by Acuiti believed the UK led in this area, and just 6% highlighted Singapore’s developing regulation.

In February, the UK government released a statement from the HM Treasury, stating: “A number of recent failures have exposed the structural vulnerability of some business models in the [crypto trading] sector.” It subsequently laid out plans for tighter rules for crypto trading platforms and a “world-first” regime for crypto lending. 

The EU and UK look likely to diverge in their approaches to crypto regulation, with the UK developing its framework using a phased secondary legislation approach and the EU opting for a “big bang” with its MiCA regulation proposal.

The EU’s Markets in Cryptoassets Regulation (MiCA) is entering into law this summer and will come into effect next June. The key provisions cover transparency, disclosure, authorisation and supervision of transactions for those trading and issuing cryptocurrencies. Members of the European Parliament (MEPs) voted in favour of draft rules regarding the supervision, consumer protection and sustainability of crypto-assets in March 2022.

Due to the action from the SEC against Coinbase and Binance, none of the respondents highlighted the US regulatory system as optimal. The report found that traders favoured “strict conflict of interest rules for firms operating multiple activities, a view stemming from the collapse of FTX and the associated impact on the market”.

FTX saw a dramatic collapse in November after it emerged that the SEC was investigating its handling of client funds and crypto-lending practices. The regulator and the Department of Justice (DoJ) both investigated the alleged misconduct and eventually the founder of FTX was charged by the SEC for “orchestrating a scheme to defraud equity investors”.

Taking into account the contextual factors, when asked if cryptoassets in the US should come under the purview of a single regulator, over half of traders agreed that the best course of action would be for the introduction of a new regulator specific to digital assets. Just under a quarter highlighted a preference for CFTC to handle the asset class, and just 12% preferred the SEC.

The remaining 9% of surveyed traders believed that regulation of crypto in the US should not come under the purview of a single regulator.

The report also delved into the role of venues and intermediaries within the sector. An overwhelming 91% responded in favour of sell-side intermediates having “the same or similar responsibilities to those in traditional market”.

Additionally, 92% agreed that venues themselves should hold principal responsibility for monitoring and reporting market abuse. A slightly lower but still significant proportion of traders surveyed – 83% – believed that they should hold the same responsibility for trade and transaction reporting.