Financial services firms, regulators and policymakers have all had to come to terms with the rise of new product categories. This special report examines the evolution of these sectors and the risks and benefits of the next iteration of digital transformation. It also considers the issues arising from the lack of an internationally agreed definition of the term “crypto”.

It looks at the potential of central bank digital currencies and the possible arms race that could emerge, with implications for financial services firms and their clients as central banks examine the consequences of digital currencies and seek to deploy them. A closer look at the approaches of China, the UK and the US shows that cyber risk is a concern for all cryptocurrencies. The report considers how firms, regulators and exchanges can enhance their cyber resilience.

Policymakers, regulators and firms all need to play a role in ensuring that cryptocurrencies are as “safe” as possible, not only in terms of investment risk, but also in terms of regulatory certainty and cyber resilience.

Supranational policymakers must continue to work towards a consistent definition of what is or is not within the regulatory purview. Under the current regulatory regime, cryptocurrencies may be considered a currency, an investment, a security, or not included at all. Cryptocurrencies, especially Bitcoin, may have gone mainstream, but if they are to live up to their potential, there needs to be clarity on how they are regulated.

A good first step is to agree on definitions. Even if jurisdictions end up banning some or all cryptocurrencies (particularly for retail customers), the foundation is international financial services consensus on what is legal and where it is legal.

Regulatory coverage of crypto assets is evolving rapidly, as some countries are at the forefront of adoption and are establishing themselves as crypto-friendly. Singapore, Bermuda, the EU, and the UK are establishing themselves as allies to varying degrees. Meanwhile, parts of Africa and India have taken steps to restrict or ban citizens from owning or using cryptocurrencies.

Harmonization of rules will be essential, but may not happen for several years. In the meantime, the regulatory landscape for digital assets will evolve, perhaps more slowly than some would like, and potentially much slower than the technology itself.

It is in everyone’s interest that cryptocurrencies be subject to a regulatory regime with clear boundaries, consistent definitions, and an agreed, well-informed stance on risk and risk management.