Language Standardisation in Crypto Asset Regulation: We Need It
The crypto ecosystem is in quite an exciting time, regulation-wise. What some dubbed “The Wild West” is taking shape with the aid of regulations. The UK recently implemented the Travel Rule, the EU has the Transfer of Funds Regulation (TFR) and various other regions have shown steady progress in their crypto regulatory processes, but some issues have arisen during this regulation spree. Apart from the implementation of the FATF Travel Rule being a challenge on its own, the inconsistent language linked to it isn't helping either.
We need language standardisation in the crypto ecosystem, and we need it sooner rather than later.
Why Does the Ecosystem Need a Standard Language?
While it may seem like a blip on the radar when compared to other developments in the ecosystem, a standard language is needed to ensure regulatory clarity amongst crypto businesses and customers.
For example, for crypto service providers, the Financial Action Task Force (FATF) makes use of virtual asset service providers (VASP), whereas the European Union’s TFR opts for crypto asset service providers (CASP). While this appears to be a trivial example, as both offer relatively similar services, the FATF’s definition does not include crypto advisory services. In other words, those not familiar with the EU’s implementation of the Travel Rule and the FATF’s Recommendation 16 could stumble upon a communication hiccup when discussing the basic functions of these crypto service providers.
Additionally, language standardisation offers economic benefits, as it reduces the need for translation services and simplifies legal, technical, and business documentation. The TFR is available in 24 languages. With each of these translations, key terms have been translated. Yes, it is imperative that legislation be available in a jurisdiction’s official language to ensure accessibility - this is not negotiable. But, due to the borderless nature of crypto, it does not make sense to translate every aspect, terms like VASP or virtual assets, for example, as this hinders communication and trade. Building on accessibility, a standard language allows further access to educational materials and opportunities for personal and professional development.
21 Analytics conducted 2 polls regarding the adoption of a standard language; one was done on LinkedIn and the other on Telegram. Both polls showed that the ecosystem wants this standardisation.
Why Does the Ecosystem Have Inconsistent Language?
The idea of crypto currencies, and all things related to it, is a relatively new field; it has only been around since the 1980s - in the 1980s, David Chaum proposed the first concept of a blockchain when he introduced the idea of digital cash - and for a currency and a language, that is rather young. On top of this, it is only in recent years that we have seen crypto regulations begin to take shape.
The languages that we know have taken aeons to develop. The traditional finance system took decades to develop to what we know today. With the crypto ecosystem, we have basically combined 2 young elements, so it comes as no surprise that the language use is inconsistent.
Examples of Inconsistent Language in Regulations
Some examples of inconsistent language usage include basic terms:
|FATF's Term||MiCA's* Term||Other Terms|
|Originator / Beneficiary||Originator / Beneficiary||USA: Transmitter / Receiver Estonia: Provider / Recipient|
|Stablecoin||Asset Referenced Token (ART) or Electronic Money Token (EMT)||Asset Backed Token|
|Unhosted wallet||Self-hosted wallet||Non-custodial wallet, external wallet, private wallet, crypto wallet|
|Virtual asset||Crypto asset||Digital asset USA: Convertible virtual currency (CVC)|
|Virtual Asset Service Provider (VASP)||Crypto Asset Service Provider (CASP)||Australia: Crypto Asset Secondary Service Provider (CASSPrs) Canada: Crypto Asset Trading Platform (CTP) Estonia: Virtual currency service provider (VCSP) France: Digital Asset Service Provider (DASP) Japan: Crypto Asset Exchange Service Provider (CESP) Liechtenstein: Trusted Technology Service Provider (TT Service Provider) Singapore: Digital Payment Token Providers (DPT Providers) UK: Cryptoasset Business (CB) USA: Money Service Business (MSB)|
|Virtual asset transfer||Crypto asset transfer||USA: Transmittal Order|
*The Market in Crypto Assets (MiCA) determines the crypto language and the definitions used in the TFR. The TFR is the implementation of the EU’s Travel Rule.
When we dive into the actual definitions, it gets even more complicated. As mentioned previously, VASPs and CASPs offer a relatively similar service, but with some exceptions. With their implementation of the Travel Rule, the UK also redefined the term VASP to a Cryptoasset Business (CB). A Cryptoasset Business can fall into 2 categories: a cryptoasset exchange provider or a custodial wallet provider. With the UK’s definition of a CB, it is also not as clear as MiCA’s.
The problem at hand is how are VASPs in these different jurisdictions to know how to conduct business if they do not have clarification on how to meet Travel Rule standards if certain activities are just not covered. Do they ignore the lack of regulatory clarity and continue business without complying? Do they comply with their counterparty’s requirements? Do they seek a different option?
This is just from a VASP’s perspective. From a customer’s perspective, they don’t understand nor care about these nuances; they want to transact. Oftentimes when customers cannot transact in a seamless manner due to additional requests from their VASPs, they too seek other solutions, and these sometimes are non-compliant options which defeat the whole purpose of the Travel Rule.
What Approach Should the Industry Take?
Language standardisation takes either a top-down or bottom-up approach. Oftentimes with language surrounding finance, regulations and the like, a top-down (authoritative) approach is taken. However, the FATF, the “creators” of the Travel Rule, have not fulfilled this role.
For starters, they have not updated their definitions of a VASP or virtual asset since 2018. Due to the rapid nature in which the ecosystem develops, this is not ideal; terms should be relooked at on a regular basis to ensure they encompass the latest developments. Some jurisdictions, like the EU, have remedied the FATF’s rusty definitions by creating their own future-proof variations, but that brings us back to square one - inconsistent language.
In other words, consistent language cannot trickle down to society if the authoritative sources are not using consistent jargon. Leaving it up to society to define terms and hope for a bottom-up approach to occur, although this requires a holistic approach from many jurisdictions which, in essence, is virtually impossible to achieve.
Bringing us back to a top-down approach. The best route forward would be for the industry (us) to jointly push the FATF to update their definitions and Recommendations to provide not only a standard language but a more current starting point for Travel Rule adopters. Again, due to the ever-evolving world of crypto authoritative sources need to remain current; unlike tradfi, which has seen little to no changes recently, crypto is still evolving and needs to be nurtured.
How to Achieve a Top-Down Approach
As a starting point, the best option would be for the industry to follow a top-down approach, with the FATF guiding. To achieve this, a Working Group would need to be developed. The Group should involve industry players and regulators from across the globe who could consolidate existing terms and definitions to create a modern and future-proof list that the FATF could implement to their existing Recommendations. If successful, the same Working Group could expand their research to include regulatory texts to ensure complete global regulatory clarity.
Examples of a top-down approach include a country’s language policy in parliament or education.
What Is Language Standardisation?
Language standardisation is used within linguistics to describe the process whereby a standard set of rules is applied to a language; that is, the language’s users will use the same grammar, vocabulary, form of writing and so forth. The purpose is to remove any irregularities and differences within the language.
The standardised form of a language is regarded as the “correct” form of the language and is oftentimes held in high regard, commonly seen in commerce and government. Standardisation can happen through a community’s usage - language as a sociolect or a dialect - or through rule implementation via community leaders (an authoritative source).