The Impact of the Ukrainian War on Cryptofinance Regulation (May 2022)

Foreword: METI Advisory wrote this report for SEBA Bank AG. The decision to economically sanction Russia, following its military invasion of Ukraine on 24 February 2022, has led policy makers and regulators to worry that cryptoassets may be used to evade such international sanctions. The G7 and some other countries, such as Switzerland and Singapore, have made it clear that compliance with the sanctions also apply to transactions in cryptoassets and the operations of related service providers. On 21 April, the International Monetary Fund and the US Treasury concluded that there was no evidence that cryptoassets were being used to evade sanctions in any material way — this outcome being driven by the structure and nature of crypto markets and the compliance efforts made by exchanges. However, even though the concerns turned out overrated, there is now a sense of urgency to regulate the crypto industry internationally, causing several crypto-leading countries to take initiatives to protect their status and contribute to the cause. Centralised cryptoexchanges have stepped up their compliance efforts, and authorities in the US have renewed efforts to regulate them. As a legacy of the ongoing war, regulators will continue to expedite the extension of their perimeter to the governance of decentralised cryptofinance platforms and further discourage the use of anonymous cryptocurrencies. On a global scale, policy makers will focus on establishing rapidly comprehensive standards for cryptoassets in the face of a growing ‘cryptoization’ of emerging markets. On balance, the regulatory discussion, analyses, and actions that the ongoing war has triggered will not undermine the broad adoption and development of cryptofinance, but foster its sustainable integration instead.