By Dr. Richmond Atuahene, Banking Consultant
Summary
Ghana’s unregulated virtual asset markets can pose significant risks to the financial sector, including increased volatility, potential for illicit activities like money laundering and fraud, and challenges to consumer protection. Without proper regulation and supervision, these markets can also expose investors to operational, cyber-security, and market risks. Crypto-currencies are known for their high volatility, and without proper regulatory oversight, this volatility can spill over into traditional financial markets, leading to instability.
The lack of regulation can create an environment where price manipulation and speculation are rampant, further exacerbating market volatility. Virtual asset transactions can be easily conducted across borders, making them attractive for illicit activities. The anonymity and lack of transparency in some virtual asset systems can make it difficult for authorities to track and trace the movement of funds, facilitating money laundering and terrorist financing. In conclusion, while virtual assets offer potential benefits, the absence of proper regulation and supervision can create significant risks for the financial sector, including increased volatility, illicit activities, consumer protection issues, and potential systemic risk. Currently, there is no universally agreed financial regulatory approach to regulate and supervise the virtual assets in the eco-system.
The literature review covered the six global regulatory approaches including the principles-based regulation, risk-based regulation, agile and flexible regulation, rules- based regulation, self and co-regulation and regulation by enforcement. The study has recommended the hybrid regulatory approach for Ghana’s crypto assets ecosystem emphasizing principles based and risk-based oversight with cross border collaboration, protection of investors’ confidence and capacity building to ensure innovation and financial stability.
1.0 Introduction/ Background
This paper presents pathway to regulating and supervising of the virtual assets (cryptocurrencies) in Ghana which could involve the multi-faceted financial regulatory approach. The Bank of Ghana is actively developing guidelines and frameworks for registration, AML compliance, and internal controls for Virtual Asset Service Providers (VASPs). This regulatory effort aims to mitigate risks associated with these assets, including those related to financial stability, consumer protection, and potential illicit activities. The pathway to regulating virtual assets like cryptocurrencies involves establishing a regulatory framework that addresses financial stability, consumer protection, and the prevention of illicit activities.
This framework should consider the unique characteristics of digital assets and their interconnectedness with the traditional financial system. The multi-faceted financial regulatory approach includes principle-based regulation, risk-based regulation, agile and flexible based regulation, self-and co-regulation and regulation by enforcement. Ghana’s pathway to regulating virtual assets will involve a comprehensive approach to address the unique challenges and opportunities presented by this evolving technology. The focus is on establishing a robust regulatory framework that promotes responsible innovation, protects consumers, and mitigates potential risks to the financial system. Therefore, multi-faceted regulatory approaches” signifies that regulations are implemented using a combination of different methods, such as principles-based regulation, risk-based regulation, rules-based regulation, agile and flexible based regulation, self-and co-regulation and regulation by enforcement.
The last decade has seen a phenomenal rise in the number of new digital instruments promising easier, faster, and cheaper global payments and transfers.
These digital representations of value and contractual rights comprise a broad (and expanding) category of assets. Common marketplace terms referencing such new products include cryptocurrencies, digital currencies, crypto assets, virtual assets, all describing systems of storing/capturing value and rights in digital form. Some of the most well-known digital assets rely on cryptographic technology to secure transactions and control the creation of additional units, underpinned by distributed ledger technology (DLT), such as blockchain, to construct a ledger (or a database) that is maintained across a network. The first of these instruments—Bitcoin—was launched in 2009 (IMF 2021). Crypto-assets, as defined by the FSB (2022) are a type of private sector digital asset that depend primarily on cryptography and distributed ledger or similar technology.
The FSB in its crypto-assets report published in February 2022 concluded that “crypto-assets markets are fast evolving and could reach a point where they represent a threat to global financial stability. Virtual assets (crypto assets) refer to any digital representation of value that can be digitally traded, transferred or used for payment. It does not include digital representation of fiat currencies. Virtual assets have many potential benefits and dangers. They have the scope to make payments easier, faster and cheaper, and provide alternative methods for those without access to regular financial products. However, they are largely unregulated, and also have the potential to become worthless and are vulnerable to cyber-attacks and scams. Without proper regulation, virtual assets also risk becoming a safe haven for the financial transactions of criminals and terrorists.
One of the first FATF amendments in October 2018 was the addition to the glossary of new definitions for “virtual assets” and “virtual asset service providers” (VASPs). A “virtual asset” is a “digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes”. This broad definition is wide enough to allow the future inclusion of new technologies. The borderless nature of the technology, the interconnectedness within the crypto-asset ecosystem and the prospect of linkages with the traditional financial ecosystem strengthen the case for a global approach to crypto-asset regulation. The FATF has been closely monitoring developments in the crypto-sphere and has issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing. In recent years, some countries have started to regulate the sector, while others have prohibited virtual assets altogether.
However, the majority of countries are yet to implement effective regulations. These gaps in the global regulatory system have created significant loopholes that can be exploited by criminals, terrorists and rogue regimes. A cryptocurrency ecosystem is a map of the cryptocurrency infrastructure. Cryptocurrency ecosystems are made up of the initiators, coders, programmers, miners, middlemen, customers, the media, and the governments. Regulating virtual assets is a complex and evolving area of law, with different jurisdictions adopting various approaches.
Many countries like Ghana are grappling with how to balance the potential benefits of virtual assets, like financial inclusion, with the risks they pose, including consumer protection concerns, financial stability implications, and potential misuse for illicit activities. . The borderless nature of the technology, the interconnectedness within the crypto-asset ecosystem and the prospect of linkages with the traditional financial ecosystem strengthen the case for a global approach to crypto-asset regulation.
With the growing popularity of cryptocurrencies, regulators had to determine the risks of this decentralized currency and decide how or whether to regulate cryptocurrency. For cryptocurrencies, there were two paths to choose from: either seek regulation or compatibility with current regulations or else remain unregulated, potentially illegally operating underground. Regulation of cryptocurrency may be the biggest challenge in taking crypto-currency mainstream.
Regulatory approaches have differed widely across jurisdictions, depending on, among other things, the maturity of the local market, the degree of expertise of public and private actors, the degree of actual or perceived harm occurring in a market and regional priorities. The varied approaches have led to regulatory fragmentation, increased risks arising from opportunities for regulatory arbitrage, and a lack of clarity on the status of the crypto environment in multiple jurisdictions. For example, a DLT-based crypto token may be termed a “virtual asset” in one jurisdiction but a “crypto token” or even a “virtual digital asset” in another (each with differing definitions) and be banned in a third. This has led to the suggestion that a global, coordinated approach to the definition and to crypto-asset regulation is needed
2.0 Overview of the current landscape for virtual assets (crypto-assets) in Ghana
For years, the Bank of Ghana has treated cryptocurrencies as unregulated and potentially risky. In public notices dated 22 January 2018 and 9 March 2022, the central bank reiterated that cryptocurrencies are not legal tender in Ghana, are not regulated under any domestic law, and are not backed by any form of guarantee. Commercial banks and other licensed financial institutions were instructed to steer clear.
This position created a legal vacuum. Cryptocurrency transactions continued, but they did so in the shadows, unmonitored, informal, and potentially exposed to abuse. Investors lacked recourse, operators lacked clarity, and financial institutions lacked direction. Yet digital asset activity grew. In August 2024, the Bank of Ghana issued draft regulatory guidelines aimed at taming the cryptocurrency market. These guidelines proposed mandatory registration for Virtual Asset Service Providers (VASPs), anti-money laundering (AML) compliance obligations, and strict internal control systems.
The guidelines were intended to protect the financial system, reduce exposure to criminal activity, and introduce some order into a chaotic space. On the back of these guidelines, the Governor of the Bank of Ghana has announced (at the African Leaders and Partners Forum 2025 in Washington, D.C.) that the central bank intends to commence regulation of virtual assets by the end of September 2025 through the enactment of a VASP law. According to the Governor, the proposed VASP law will empower the Bank of Ghana to license and supervise the operations of entities active in the digital asset space. It will also enable joint oversight by the Bank of Ghana and the Securities and Exchange Commission (SEC) over a broad range of activities, including cryptocurrencies, digital fiat currencies, tokens, and blockchain-based platforms (Bentsi-Echill, Letsa & Ankomah, 2025).
Over the past three (3) years, the use of various digital assets by Ghanaians has recorded a significant increase on account of factors such as high mobile money penetration, a tech savvy youth demographic, high internet usage and the rise of online companies offering crypto and virtual asset services, popularly known as Virtual Asset Service Providers (VASPs) (Bank of Ghana document in August,2024). Following an extensive internal review of the surging popularity of digital assets like cryptocurrencies such as Bitcoin and Tether (USDT) in Ghana, and engagements with various stakeholders, the Bank of Ghana issues draft guidelines on digital assets.
These guidelines are intended to expose the Bank’s proposed regulatory measures and solicit feedback from industry and the public. This is in line with the Bank’s commitment to continuously evolve a conducive regulatory environment that promotes financial inclusion and enhances financial stability (BoG Draft Guidelines on Digital Asset on August 2024). The digital asset landscape in Ghana is evolving, with increasing interest and adoption of crypto assets and blockchain technology, supported by a growing number of exchanges and initiatives in the country’s financial ecosystem. This trend has been driven by factors such as high mobile money penetration, tech savvy and youthful population, high internet usage among Ghanaians and the influence of online regional and global companies offering crypto or virtual asset services, particularly the VASPs
According to Bank of Ghana (2024) the digital assets ecosystem in Ghana is primarily controlled by entities facilitating the buying, selling, and trading of virtual assets. These platforms provide liquidity and access to cryptocurrencies with stablecoins and Bitcoin being the most widely recognized and utilized. Additionally, Ether (on the Ethereum network) and various alternative crypto assets (altcoins) also hold significant prevalence within the market. Although these transactions have relatively insignificant volumes compared to the broader digital payments, the dynamic growth of digital asset calls for regulatory clarity to ensure adequate financial stability and consumer protection.
Regarding regulation, the Bank of Ghana has provided clarity on the regulatory status of virtual assets through notices No. BG/GOV/SEC/2018/02 and BG/GOV/SEC/2022/23 to the public with specific directives to regulated entities. Additionally, the Bank has adopted a cautious “wait-and-see” approach, closely monitoring market developments related to crypto assets, including a limited stakeholder engagement in 2023. This approach is designed to enhance the Bank’s preparedness to maintain financial stability and develop an appropriate regulatory framework in response to evolving trends
Overall, Ghana’s digital assets landscape has been dynamic, with increasing interest in virtual assets and blockchain technology. However, the Bank of Ghana acknowledges regulatory challenges and is working towards a more structured framework to support safe, responsible, and sustainable growth and innovation in the sector
The lack of a registration or licensing regime in Ghana for crypto asset service providers further aggravates the difficulty for users to distinguish between legitimate and illegitimate providers. Given the prevalence of frauds and other criminal activity in the crypto asset ecosystem, retail users with a low degree of crypto asset literacy are especially vulnerable to being victimized, as evidenced by the VASP National Risk Assessment. Although no panacea to preventing criminal activity (or mitigating ML/TF risks), both public and private sector stakeholders have said that a registration or licensing regime would be very useful for users to be help them to distinguish between legitimate and illegitimate actors in this space.
As registered or licensed entities, VASPs would arguably also find it easier to establish domestic banking relationships, reducing the incentive for retail users to use unregulated payment rails and P2P networks. The Bank of Ghana is taking a phased approach to regulating virtual assets, starting with mandatory registration for Virtual Asset Service Providers (VASPs) and gradually implementing more comprehensive regulations.
With Bank of Ghana (BoG) having given all Virtual Asset Service Providers (VASPs) operating in the country until August 15, 2025, to register with the central bank thus pin-point to the pathway to regulate and supervise the of crypto-asset ecosystems in Ghana. The Bank of Ghana (BoG) has issued a directive mandating all Virtual Asset Service Providers (VASPs) operating within the country to register with the central bank by August 15, 2025. The move is part of efforts to bolster financial stability and develop a comprehensive regulatory framework for the growing digital asset ecosystem. The mandatory registration applies to both local and foreign VASPs offering services to Ghanaian residents, whether through a physical presence or digital platforms.
This exercise is aimed at ensuring that the forthcoming legal and regulatory frameworks for VASPs are informed by market developments and aligned with international best practices,” the central bank said. The BoG clarified that registration does not amount to a licence to operate or imply legal recognition or approval. However, failure to comply may result in sanctions or disqualification from future licensing opportunities. The central bank’s move comes amid increasing global efforts to bring virtual asset activities under regulatory oversight, particularly to prevent financial crimes, protect consumers, and ensure the integrity of financial markets. Ghana, like many emerging economies, is experiencing rapid growth in digital financial services, including crypto-related activities.
In Ghana, existing regulation cannot be applied to certain crypto-asset activities due to difficulties in categorizing the related crypto-assets as payment instruments or financial instruments (e.g., securities, commodities, and/or derivatives) under the existing regulation. The pathways to regulation, supervision, and oversight of crypto-asset activities and markets are crucial for ensuring financial stability and consumer protection. The Ghana Financial Stability Council must be actively involved in developing a country-wide regulatory framework for crypto-assets, including “global stable-coins”, to address potential risks. The GFSC must emphasize the need for consistent and comprehensive regulatory approaches across financial service sectors, alongside strong international cooperation, coordination, and information sharing.
Regulators are focusing on identifying and managing the risks associated with crypto-assets, including potential threats to financial stability, especially from “global stablecoins.” Regulations in the country must aim to protect consumers by ensuring transparency, disclosure, and robust risk management practices related to crypto-assets and related service. The overarching goal will be to mitigate the potential risks that crypto-asset markets pose to the broader financial system, including interconnectedness with traditional financial institutions. Ghana’s approach so far has created a regulatory vacuum in the digital asset space. Crypto activities have continued through peer-to-peer networks and informal platforms, but without legal certainty or consumer protections.
This exposes users to fraud and market volatility, and service providers operate with no formal rules or licensing obligations. A new legal framework will help address these risks and bring order to the system. The Bank of Ghana’s decision to regulate cryptocurrency signals a clear shift in its policy stance. Digital assets have remained unregulated for years, but their growing use and the absence of oversight have created a legal and economic gap. Regulation alone will not eliminate the risks, but it introduces a foundation for control, investor confidence, and future development (Bentsi-Echill, Letsa & Ankomah, 2025). Ghana must develop financial regulatory approach and appropriate regulatory framework in response to evolving trendsfor the growing virtual assets ecosystem.
3.0 Regulatory and supervisory issues and challenges in the virtual assets eco-system
Regulatory powers and coverage crypto-assets can pose challenges to legal, regulatory, and enforcement frameworks. In some jurisdictions, crypto-asset activities are conducted in non-compliance with applicable domestic regulations and may lead to enforcement and supervisory challenges for authorities. In some other jurisdictions, crypto-assets may fall outside of the existing regulatory perimeter, leading to regulatory gaps.
- Governance
Many organizers of crypto-asset activities structure themselves in ways that result in opaque governance in an attempt to evade regulation and accountability. As a result of these efforts, regulators may face challenges in identifying the entity responsible for the actual governance. Such challenges can be more pronounced within the DeFi ecosystem. Some stablecoin arrangements also purport to apply a decentralized governance structure that potentially gives rise to challenges in identifying the entity that exercises actual control over the governance.
B. Cross-border cooperation
Crypto-assets are regulated differently across jurisdictions. Crypto-asset issuers and service providers could migrate to places where regulation is lighter, and existing regulatory cooperation arrangements may not effectively capture all aspects of a specific crypto-asset activity. This may amplify contagion when a crypto-asset service provider is in distress or failure.
C..Data management and disclosure
Data gaps are a key concern in the regulation, supervision and oversight of crypto-assets. Some entities do not disclose or report reliable data in compliance with existing requirements. Many crypto-asset service providers extensively conduct activities “off-chain”, meaning that a large part of the relevant data is neither publicly available on blockchains nor properly disclosed. On-chain data is typically pseudonymous and may be difficult to interpret. In some cases, regulated traditional financial entities
D. Lack specific reporting requirements concerning their participation in crypto-asset activities.
Crypto-asset service providers often combine a wide range of functions, including trading platform, custody, brokerage, lending, deposit gathering, market-making, settlement and clearing, issuance, distribution, and promotion. The combination of some functions poses additional risks originating from mutual reinforcement and interaction of individual risks. It may also give rise to conflicts of interest. In certain jurisdictions, some combinations of functions are not permitted or are subject to special regulatory regimes. Without appropriate controls, such as when entities are in non-compliance with existing requirements or there is a lack of comprehensive regulation or legal segregation of certain functions, crypto-asset service providers that combine certain functions could become key central points for amplifying and transmitting risks. The combination of various activities could support the growth of such providers, and if they became sufficiently large, could represent a single-point of failure with implications from a systemic risk perspective
E. Crypto-asset transactions constitute a higher risk of money laundering.
In June 2018, the FATF released virtual Currencies potential AML/CTF Risks and highlighted the following areas of concern with virtual assets: A high degree of anonymity; Crypto-currency transactions allow greater anonymity than traditional non-cash payment methods. Users can trade virtual currency on the internet, and transactions are generally characterized by non-face-to-face customer relationships, permitting anonymous funding (cash funding or third-party funding through virtual exchangers that do not adequately identify the funding source).
Lack of centralized oversight: Law enforcement cannot conduct an investigation or seize assets against a single central location or entity (administrator) — although authorities can target individual exchangers to retrieve client information that the exchanger may collect. Thus, virtual currency transactions provide a level of anonymity that is not possible with traditional credit and debit cards or older online payment systems. Cross-border transactions; AML/CTF risks are exacerbated when you have worldwide reach because it makes surveillance and enforcement more difficult
4.0 Literature Review on Global Financial Regulatory Approaches in the regulating and supervising of the virtual assets (crypto-assets) eco-system.
World Economic Forum, White paper, May 2023) opine that crypto asset regulation requires a forward-thinking and flexible approach that balances innovation and stability. By examining global best practices, we gain valuable insights to develop regulatory frameworks that encourage growth, protect consumers and foster trust in this dynamic digital landscape. Regulatory clarity that is globally coherent is critical to protecting consumers, creating sound markets, and ensuring continued innovation based on this revolutionary technology. Various regulatory approaches have been adopted or are being considered by regulators and policy makers. This section discusses some jurisdiction examples pertaining to a wide spectrum of proposed financial regulatory approaches such as principle-based, risk-based, agile regulation, rules- based regulation, self and co-regulation and finally, regulation by enforcement (World Economic Forum, White paper, May 2023).
A. Principle-based financial regulation or Outcome based regulation
IMF Wp/18/178 (2018) opine that principles are of a broader nature: they set a framework within which there is some form of flexibility in how one can achieve the goal/results set by a standard or principle.
The application of standards and principles implies that one has to put in some effort and take responsibility for coming up with a tailor-made solution in order to achieve the goal and results set by the standard or principle. Simultaneously, this requires that the enforcement agency, supervisor, and/or regulator is also able to judge the (in) actions of the subject with a principle-based mindset. Regulators and supervisors require specific skill sets to deal with principle-based regulation. They will need to be able to judge a broad and varied set of possible applications of a certain.
MaCarthy C. UK FSA (2006) in the document noted that principles-based regulation means moving away from reliance on detailed, prescriptive rules and relying more on high-level, broadly stated rules or Principles to set the standards by which regulated firms must conduct business. UK FSA (2006) opine that principles- based regulation identified that broad-based standards in preference to detailed rules; outcomes-based regulation; and increased senior management responsibility. Principles-based regulations lay out the broader principles and the outcomes intended. Instead of prescribing detailed rules, this regulatory approach outlines the results and performance expected.
Principles-based approach emphasizes “same activity, same risk, same regulation”, emphasizes the importance of a globally consistent regulatory approach to mitigate regulatory arbitrage. While there is flexibility for businesses to achieve the outcomes, this approach is usually supported by guidance, industry standards and other non-statutory approaches to providing clear direction. Importantly, outcomes should be sufficiently long-term to provide stability and predictability for business. The crypto-assets ecosystem is a fast-evolving domain requiring the consistent testing of new risks and business models. Black et-al (2007), opine that in the UK and to a lesser extent in the European Union, the trend since the 2008 financial crisis has been towards principles -based regulation focused on outcomes.
This has been driven by a range of factors, including a belief that principles- based regulation reduces the potential for ‘creative compliance’ and forces firms to consider the implementation of regulation and how it applies to their business rather than adopting a ‘tick-box approach’. Principles based regulation also has the advantage that it may not need updating as frequently to respond to new developments, for example new products – although that does require the new product to be within the regulatory perimeter as crypto-currencies have shown. The principles -based regulation applies effective regulation, supervision, and oversight to crypto-
asset activities and markets – including crypto-asset issuers and service providers –proportionate to the financial stability risk they pose, or potentially pose, in line with the principle “same activity, same risk, same regulation. In simple terms, the principles-based systems are about specific regulatory outcomes.
The firms must reverse engineer what they need to do to meet these outcomes and document to the regulator how their actions achieve this. There is less ambiguity ab out the outcomes of regulation than ab out whether the firm’s actions actually achieve these. Effective policy-making benefits from a principle-based outcome-driven approach, allowing for embedded regulation to align with the outcomes. Outcome-based regulation lays down principles and desired outcome instead of prescriptive rules.
This based regulation promote technological innovation and flexibility. Countries like United Kingdom, Liechtenstein and Gibraltar have adopted the principles based regulatory approach in regulating the virtual assets (crypto assets). Hong Kong’s Securities & Futures Commission has adopted a technology-neutral, outcome-based approach to virtual asset custody, focusing on robust asset protection measures rather than specific hardware solutions. However, uncertainty for businesses and measuring implementation remained the key challenges in the principles- based regulation.
B Risk-based financial regulation
Financial Stability Board (2024) in their document opine that “Risk-based financial approach” (RBA) is a related concept in which regulatory and supervisory measures are applied based on the risks posed by the activities or entities taking into account limited supervisory resources. In the context of financial inclusion, the application of a RBA requires appropriate identification of the risks presented by individual transactions, users, or Payment Service Providers (PSPs) to mitigate the risks sufficiently to continue to ensure the access of legitimate parties to those services.
According FATF (2022) an effective risk-based approach will reflect the nature, diversity, and maturity of a country’s VASP sector, the risk profile of the sector, the risk profile of individual VASPs operating in the sector and the legal and regulatory approach in the country, taking into account the cross-border, Internet-based nature and global reach of most VA activities. An effective risk-based regime should reflect a country’s policy, legal, and regulatory approach. The Ghana’s policy, legal, and regulatory framework should also reflect the broader context of financial sector policy objectives that the country is pursuing, including financial inclusion, financial stability, financial integrity, and financial consumer protection goals, and consider such factors as market competition.
A “Risk-based approach” (RBA) is a related concept in which regulatory and supervisory measures are applied based on the risks posed by the activities or entities taking into account limited supervisory resources. In the context of financial inclusion, the application of a RBA requires appropriate identification of the risks presented by individual transactions, users, or Payment Service Providers (PSPs) to mitigate the risks sufficiently to continue to ensure the access of legitimate parties to those services. Risk-based regulations are based on the assessment by the rule/standard-setter of the risks relevant to their mandate, and the appropriate level of intervention required in accordance with the level of risk. If an actor performs low-risk activity, the regulation would be accordingly streamlined, providing for lower compliance requirements. This enables regulators to use their resources efficiently, focusing their efforts on higher-risk activities. Appropriate comparisons of alternatives should also be considered in a risk-based framework.
For instance, payment stable-coins, as a tokenized form of cash, resemble physical cash in circulation. Risk considerations should be formulated based on the relevant comparison. Within the crypto-asset ecosystem, due to the higher concentration of financial uses, both international organizations and national regulators have advocated for a risk-based approach to regulation to ensure parity and proportionality.
However, due consideration should be given to the distinction between centralized and decentralized entities. As most DeFi applications do not custody or have direct access to customer funds, the risk issues are quite different, even though the functionalities might be similar. Additionally, recognition of risk reductions from existing financial architecture should also be taken into consideration in a risk-based approach. For instance, with appropriate guardrails, the substitution of physical cash with tokenized cash can enhance the ability to KYC and address AML concerns.
Reducing reliance on balance sheet-heavy intermediation activities can also reduce systemic risk concentrations. Risk-based regulation regulates as per the risk posed by the activity with the benefits of certainty as regulation is proportionate and efficient resource allocation. Supervisors should also develop a deep understanding of the VASP market, its structure, and its role in the financial system and the country’s economy to better inform their assessment of risk in the sector. This may require investing in training, personnel, or other resources that enable supervisors to gain the practical skillsets and expertise needed to regulate and supervise the range of VA providers and activities described in the VA services or business models. Supervisors should review their assessment of the risk profiles of both the VASP sector and VASPs periodically and when VASPs’ circumstances change materially or relevant new threats emerge.
Examples of existing country supervisory practices for VASPs or the broader VASP sector as well as country examples relating to ML/TF risks associated with particular VA products, services, or business models. Countries such as South Africa, UK, Singapore, Finland and Hong Kong have adopted the risk -based regulation in regulating the virtual assets (crypto assets).
In South Africa, crypto assets are classified as “financial product” under the Financial Advisory and Intermediary Service Act. Service providers and intermediaries must be authorized by the Financial Sector Conduct Authority under the Act
The UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulation 2017, which became applicable to crypto-asset businesses in January 2020, provides a risk-based approach for applying customer due diligence, monitoring and reporting suspicious activities.
Singapore, in its consultations, has proposed regulatory measures to reduce the risk of consumer harm from crypto-currency trading. For instance, these include consumer access-related measures where services are offered to retail investors. Put another way, where customers are less sophisticated, there are increased compliance requirements for service providers
Hong Kong’s regime for virtual-asset activities, in place since 2018, requires, among other investor protection measures, the conducting of a virtual-asset knowledge assessment. Hong Kong is currently consulting on imposing additional safeguards if retail access to virtual assets is to be allowed
C. Agile and flexible based financial regulation
In the study by Kaiser and Olszynski (2023) described as “agile” regulatory system – one that is stringent but also flexible and predictable – is increasingly understood as necessary for accelerating the transition to a low-carbon economy. Agile and flexible regulation in the virtual asset or crypto asset space involves creating regulatory frameworks that can adapt to the rapid technological advancements and evolving nature of the industry. This approach often includes regulatory sandboxes, principle-based regulations, and a willingness to revisit frameworks as the sector matures. Agile regulation involves ongoing monitoring of the market and regular review of regulations to ensure they remain relevant and effective. Effective agile regulation requires collaboration between different regulatory bodies to ensure a consistent and comprehensive approach. Rather than mandating specific technologies, agile regulation focuses on the desired outcomes (e.g., security, investor protection) and allows for flexibility in how those outcomes are achieved. Agile methodologies, traditionally used in soft ware development, are being adapted to financial regulation to streamline processes, improve adaptability, and enhance collaboration
The goal is to foster innovation while mitigating risks and ensuring market integrity. The regulatory framework should accommodate evolving markets and products. Future legislation will provide a clear framework in the Ghana, providing clarity as to the scope of activities to which the regime applies, with detailed rules set by the regulators. Agile based financial regulation involves using agile methodologies to adopt to evolving financial landscapes and regulations, promoting flexibility and continuous improvement in regulatory processes. This approach emphasizes iterative development, feedback loops, and collaboration enabling financial institutions to respond more effectively to regulatory changes and financial market dynamics.
Instead of prescribing and enforcing rules, agile regulation adopts a responsive, iterative approach, acknowledging that policy and regulatory development is no longer limited to governments but is increasingly a multi-stakeholder effort. Regulatory sandboxes, guidance and regulators’ no-objection letters are all forms of agile regulation that enable the testing of new types of solutions, iterating policy frameworks based on ecosystem evolution and industry needs. Agile based financial regulation is flexible, iterative and proactive approach and appreciates market maturity and ecosystem development. The government judges that this agile approach will enable regulators to adapt to changes in the market and developments in international standards. In addition, and in line with the objective of promoting Ghana financial stability, the proposed regime will need to evolve if crypto-asset markets pose or are likely to pose financial stability risks.
Agile-based financial regulation offers a promising approach for improving the efficiency, flexibility and effectiveness of regulatory processes in the financial services industry. By embracing agile principles, financial institutions can better adapt to change, manage risks, and maintain compliance in a dynamic and increasingly complex regulatory environment. The three key challenges in the agile based financial regulation are uncertainty, coordination and collaboration. In conclusion, agile and flexible regulation is crucial for the responsible development of the virtual asset ecosystem. It allows for innovation while ensuring that the risks associated with this rapidly evolving technology are appropriately managed.
Countries like Switzerland, UAE, European Union and India have all adopted the Agile based financial regulation approach. The Swiss Financial Market Supervisory Authority (FINMA)’s token classification prescribes three simple categories: payment tokens, utility tokens and asset tokens. The framework acknowledges hybrid tokens and that a token’s classification may change over time. Following the first classification, FINMA later also published further guidance in 2019 on stable tokens (classified as asset or a hybrid between asset and payment tokens). Regulatory sandboxes in the EU, India and the UAE are an example of an agile regulatory approach to regulation.
D. Self- and co-financial regulation
Self- and co-regulation is based on multi-stakeholder engagement between public and private sectors thus giving the benefits of building trust in the ecosystem and are innovation-friendly. Japan and Switzerland have adopted this regulatory approach.
In October 2018, Japan’s Financial Services Agency (FSA) gave the country’s crypto-currency industry self-regulatory status, allowing the Japan Virtual Currency Exchange Association (JVCEA) the power to police and penalize Japanese crypto-currency exchanges, with oversight from the JFSA.
In Switzerland, the Financial Market Supervisory Authority (FINMA) authorizes self-regulatory organizations (SROs) to oversee the compliance of SRO members with anti-money laundering legislation, while being supervised by FINMA.
E. Rules- based financial regulation
Arnold (2022) in his study reveals that rules-based financial regulation is a regulatory approach characterized by detailed, specific rules that prescribe exactly what financial institutions can and cannot do. It’s a highly prescriptive method, leaving little room for interpretation or discretion. This approach aims to provide clarity and consistency, making it easier for firms to understand their obligations and for regulators to enforce compliance. Arnold Kling (2022) noted that, the advantage of traditional rules-based regulation is that the regulated entity knows exactly what is legal and what is not. With principles-based regulation, this is less clear until case law develops.
Pas al Frantz and Norvald Instefjord (2014) noted that in the rules- based systems there is clarity about the compliance process but the process of forward-engineer this into regulatory objectives is also ambiguous. Rules-based financial regulation relies on precise, predetermined rules to govern financial institutions and markets. This approach contrasts with principles-based regulation, which emphasizes broad objectives and allows for flexibility in implementation. The literature on rules-based regulation explores its effectiveness in achieving financial stability, promoting fair competition, and protecting consumers, while also examining potential drawbacks such as rigidity and susceptibility to circumvention. Rules-based regulation employs specific, often quantitative, standards that define acceptable behavior for financial institutions. For example, regulations might specify capital adequacy ratios or leverage limit.
Rule based when regulations are applied to licensed entities or groups that engage in regulated activities (such as deposit taking, payment facilitation, lending, and securities under-writing). The rules-based approach provides clear guidelines, thereby reduced ambiguity and the potential for subjective interpretation by both regulators and regulated entities. For the country rules-based frameworks had been particularly important where regulatory certainty was required, as in the areas of anti-money laundering (AML) or consumer protection, where specific, enforceable requirements ensured robust safeguards and consistent practices across the industry. Rules-based regulation relies on precisely defined rules that outline specific actions and behaviours required of financial institutions and by providing clear guidelines, this approach aims to produce predictable and consistent outcomes across different institution. The specific nature of the rules makes it easier for regulators to monitor compliance and enforce regulations. Rules-based regulation provides a more detailed and prescriptive framework.
While rules-based regulation can be effective in ensuring consistency and preventing regulatory arbitrage, it can also be criticized for being inflexible and potentially hindering innovation. Rules-based regulation systems lead to a checklist mentality, where firms focus more on ticking boxes than ensuring overall compliance. Rules-based financial regulation has both strengths and weaknesses. While it can offer clarity, predictability, and reduced regulatory arbitrage, it may also lack flexibility and be susceptible to circumvention. The ongoing debate about the optimal balance between rules-based and principles-based approaches reflects the complexities of regulating a dynamic and evolving financial system
Countries with rules-based financial regulation typically have detailed, specific rules outlining requirements for financial institutions, often with numerical thresholds and clear guidelines. Examples include the United States, Canada, and certain jurisdictions within Europe
F. Financial Regulation by enforcement
The concept of “regulation by enforcement” is embedded in the IMF’s work related to financial stability, economic development, and overseeing international monetary and financial systems. The IMF uses its surveillance, lending, and capacity development functions to encourage member countries to adopt sound financial regulations and then enforces these through various means, including policy advice, technical assistance, and, in some cases, conditional lending. Regulation by enforcement indicates that enforcement actions are being used to define regulatory frameworks. Regulation by enforcement can enable regulators to achieve a range of positive outcomes. It gives agencies teeth to promote their institutional mandates and to generate confidence among the public that the agency is, in fact, doing the job it is charged to do. Enforcement is generally viewed as a tool to secure compliance with regulations. It plays an important role in reducing violations of standards.
Given the overlap between crypto-asset uses and existing regulatory frameworks around securities, commodities, money laundering etc., several regulatory authorities brought enforcement actions against crypto-asset companies and participants, alleging that, although the crypto-assets were based on a novel technology, they violated existing laws and therefore the companies/participants should be held liable. Enforcement actions are necessary to address issues relating to fraud and market manipulation, especially where crypto-assets blatantly resemble securities and are being used for explicitly prohibited activities such as money laundering.
USA regulatory approach is based on regulation by enforcement. Enforcement of existing securities rules if activity falls within purview of the regulated activities as determined on a case-by-case basis. Financial regulation by enforcement is the process where regulatory bodies ensure compliance with financial laws and rules by imposing sanctions and taking actions against financial institutions that violate those regulations, directives and rules. This involves investigating potential violations, determining appropriate penalties and taking steps to correct or prevent future misconducts. It’s a crucial aspect of maintaining a stable and trustworthy financial system, protecting consumers and investors and ensuring fair market practices. However, Regulation by enforcement can thus create efficiencies in agency administration when it produces sought-after policy results (for example, improved investor protections, more competitive markets) at relatively lower bureaucratic cost (for example, with greater speed and encompassing fewer procedural steps) (Chris Brummer, Yesha Yadav† & David Zaring, 2024).
G. In conclusion, regulation of the crypto-asset ecosystem is at varying stages of development across jurisdictions, and different regulatory approaches can have varying effects in promoting global coordination. With a principle-based approach, it is possible for jurisdictions to identify common goals while devising tailored pathways to achieve this outcome, such as ensuring responsible innovation and consumer protection. Risk-based regulation involves addressing common risks – such as money laundering, illicit financing, potential threats to financial stability, etc. – and using similar methods in managing the risks. International organizations such as the FSB and FATF have been coordinating these efforts by researching the risks and recommending common actions.
An agile approach, while much needed for the evolving ecosystem, tends to be more region-specific, as policy-makers and regulators respond to specific market conditions to avoid regulatory gaps. Self-and co-regulation is important because it enables industry participants to collaborate and develop best practices, codes of conduct and standards that can then be adopted across jurisdictions and reduce regulatory complexity. Finally, regulation by enforcement would require close coordination among law-enforcement agencies to enforce rules and regulations consistently at the global level.
5.0 Research Methodology
To assess the pathways to the financial regulation of virtual assets (crypto-assets) eco-systems in Ghana using literature analysis. The investigation is qualitative and is based on the literature. Information is compiled from secondary sources, such as IMF, FSB, FATF publications, academic Journals, news pieces, reports, and websites with Research articles. The research includes an analysis of papers that were published in different journals
6.0 Conclusion.
By integrating literature produced between 2000 and 2024, this review study adds to the corpus of existing literature by offering a perspective on the multi-faceted financial approach is needed in the global digital assets space regulation to maximize the advantages from the underlying technology and to manage the risks arising from regulatory arbitrage and the interconnectedness within the crypto-asset ecosystem, as well as the potential of spillover into the traditional financial systems. After reading all these studies, it is clear that crypto asset poses a very serious threat to financial services sector as well as whole economy of a country. If crypto assets are not properly regulated it could have detrimental effect on the country’s financial system. The existing literature looks at multiple aspects of virtual assets in the global financial systems, such as their sources, effects on the financial industry, difficulties, and management and resolution techniques
However, given that the Ghanaian market is at the stage of immaturity, the development of country’s hub and the varying capacity of regulators, it is prudent to holistically focus also on the important role that the international organizations like IMF, FATF and BCBS and national/ regional regulators as well as industry actors can play in ensuring responsible regulatory evolution. The development of Ghana’s regulatory and supervisory framework for crypto assets should be aligned with international frameworks and standards. In developing the regulatory framework, particular emphasis should be placed on the provision of regulatory clarity allowing the domestic crypto-asset sector to develop in a transparent way and enabling the effective supervision by the authorities.
The relevant authorities like Bank of Ghana and Securities Exchange Commission should be equipped with the necessary resources to effectively monitor crypto asset activities and the potential build-up of risks, including risks to the functioning of the payment system and monetary transmission channels. Ghanaian Authorities must initiate an inter-institutional process to define the government’s general policy direction and prepare recommendations regarding the substance and regulatory structure of the envisaged crypto assets regulatory framework. This study recommend that Ghanaian financial regulators adopt the hybrid regulation model of principles- based and risk- based financial regulations in the regulating and supervising the Ghana’s virtual assets eco-system: With a principles-based approach, it is possible for Ghanaian Financial Regulators to identify common goals while devising tailored pathways to achieve this outcome, such as ensuring responsible innovation and consumer protection.
Risk-based regulation involves addressing common risks – such as money laundering, illicit financing, potential threats to financial stability, etc. – and using similar methods in managing the risks. International organizations such as the FSB and FATF have been coordinating these efforts by researching the risks and recommending common actions. An agile approach, while much needed for the evolving ecosystem, tends to be more region-specific, as policy-makers and regulators respond to specific market conditions to avoid regulatory gaps. Self-and co-regulation is important because it enables industry participants to collaborate and develop best practices, codes of conduct and standards that can then be adopted across jurisdictions and reduce regulatory complexity.
Finally, regulation by enforcement would require close coordination among law-enforcement agencies to enforce rules and regulations consistently at the global level. However, this write up will not recommend to build out the Ghanaian financial regulatory framework for the virtual assets (crypto assets), as “regulation by enforcement” precludes any meaningful discussion of what should and should not be regulated. Regulation by enforcement does not provide the crypto industry with clear rules
7.0 Policy Recommendations
First, from the above discussions on the multi-faceted financial regulatory approaches, this study recommends that Ghanaian financial regulators could adopt the hybrid financial regulation model for Ghana, combining the principles- based and risk- based financial regulations in the regulating and supervising the Ghana’s virtual assets eco-system: a). Ghanaian financial regulators by the adopting the principle-based financial regulation could offer flexibility, encourage innovation, and can be more future-proof than strict rules-based systems. By focusing on desired outcomes rather than rigid rules, it allows firms to adapt to changing circumstances and develop tailored compliance strategies, potentially leading to reduced costs and increased competitiveness.
This approach also promotes a deeper understanding of risk and encourages ethical behavior within the financial sector. It offers flexibility and adaptability, innovation and efficiency, enhanced risk management and accountability, potential for global consistency and improved regulatory effectiveness. While there are potential drawbacks, such as the need for clear and well-defined principles and the possibility of inconsistent application, the advantages of principles-based financial regulation make it a valuable approach in dynamic and complex markets. b). In addition to the principles -based regulation, Ghanaian financial regulators could also adopt of the risk based financial regulation, that could offer several key advantages, primarily by enhancing efficiency, effectiveness, and flexibility in managing and mitigating risks within the financial sector.
It allows for a more focused approach, directing resources towards areas with the highest potential for negative impact, leading to better resource allocation, reduced costs, and improved regulatory compliance. Risk-based financial regulation offers enhanced efficiency and resource allocation, improved effectiveness and outcomes, better risk management, increased flexibility and adaptability, stronger regulatory compliance and enhanced trust and reputation:
Second, Ghana may choose from a number of design strategies and choices in developing a legal and regulatory regime for crypto assets and related activities. These options include: (a) undergoing comprehensive legal reform, (b) drafting targeted legal amendments followed by regulations (c) the issuance of regulation without legislative changes, (d) the use of exemptions, (e) prohibition or bans (IMF Country Report on Kenya Crypto Regulation and Legislation (2024). There is no specific legislation on crypto assets in Ghana. The regulatory framework has been provided for draft guidelines and regulations issued by the Bank of Ghana (BoG) on August 2024 that has often resulted in a contradictory, uncoordinated approach, without legal certainty.
a. Ghana will need comprehensive legal reform. This may result in a special regime with detailed definitions that capture novel aspects of crypto assets and specific rules to address them. Comprehensive legislation should also cover aspects of licensing, supervision, regulation, sanctions, and enforcement regimes. Comprehensive legal reform can provide clarity and to an extent, legal certainty. The role of relevant regulators, agencies and other actors can be clearly provided for. However, undergoing comprehensive legal reform may be technically challenging and time consuming and require an adequate level of institutional capacity. It may also be a less flexible approach given that amending legislation in the future may be an arduous task.
Moreover, even though a comprehensive regime will ensure legal certainty within the crypto assets universe by providing comprehensive regulations those types of crypto assets, it should ensure that it is consistent with existing, traditional financial sector laws which may already cover certain types of assets within their scope. it might create some ambiguity where a certain type of asset could be considered in-scope of existing financial regulation. In light of this, any comprehensive legislation must ensure that it is consistent with existing, traditional financial sector laws.
b. Targeted legal amendments followed by regulations. The option of making targeted amendments followed by regulations may provide greater flexibility vis-à-vis a dynamic crypto asset landscape. However, authorities issuing regulations must have the requisite legal authority to do so. Where the legislature expressly provides for certain types of assets to be regulated and further on specifies the mandates for regulators and supervisors with respect to such assets, the framework also benefits from a certain degree of legitimacy.
It can also ensure a consistent approach between different regulators and supervisors based on the overarching choices of the legislature that subsequently bind and pre-determine the regulatory and supervisory authorities in their detailed approach towards crypto assets. This approach may be quicker to implement than a full-blown, comprehensive legal framework, as the legislature will only specify definitions, mandates for supervisors and overarching principles of the regulatory approach, while leaving the specification of the more detailed framework to expert bodies. This ensures adaptability of the framework over time without the need for parliamentary review of the legislation, whilst also providing a high degree of level of legal clarity.
c. Issuing regulations without any legislative changes. This approach may be quickest to implement and my also provide the advantage of greater flexibility in an evolving crypto assets landscape. The regulator may be enabled to issues regulations under their existing legal mandate. Comprehensive regulations may also promote innovation as they provide clear rules on permitted activities. However, there must be clear legal authority to issue such regulations relating to crypto assets and services.
Furthermore, this approach may not solve the problem of competing mandates and is not capable of solving conflicts of competences where certain crypto assets might be captured under different existing laws, for example payments laws versus securities laws
(d) The use of exemptions. This involves applying exceptions to certain provisions of existing laws, often securities laws, to certain crypto asset activities. The economic actor is thereby exempted from liability and enforcement action relating to the relevant provision. This approach may take account of traditional securities laws/ rules which may not apply to new business models or however will not provide a comprehensive or wholistic framework for crypto asset regulation. The ability to use this approach will depend on a legal analysis within the jurisdiction on the ability of the regulator to take such action. This approach may also not provide certainty as exceptions are often taken on a case-by-case basis, not binding on future enforcement action and does not effectively provide clear rules relating to crypto asset activities.
(e) Prohibitions or outright bans. Ghana may decide to ban or outlaw the ownership, use, trading, and other related crypto assets activities. Although this definitively indicates a stance on crypto assets, it stifles innovation and promotes illicit activity enabled through regulatory arbitrage and drive such activity underground. Bans may also be difficult and costly to enforce given the borderless nature of crypto assets ((IMF Country Report on Kenya Crypto Regulation and Legislation (2024)
Third, the Ghanaian financial regulators must adopt best practices on critical functions (custody, transfer, settlement, track/track illicit activity, etc.) and baseline regulatory standards for AML/KYC, consumer protection and market integrity, etc. should be set out clearly. Promote evidence-based nuanced understanding of implementing the best practices to ensure that technology solutions and regulatory standards are interoperable. Ghanaian regulators must develop guidelines, best practices and frameworks to proportionately regulate the on/off ramps for crypto-asset eco-systems. Regulators should adopt best practices to leverage technologies and analytics service providers for automated regulatory compliance/reporting, real-time risk alerts and tracking regulatory change.
Fourth, Bank of Ghana and Securities Exchange Commission must have the appropriate powers and tools, and adequate resources, to regulate, supervise, and oversee crypto-asset activities and markets, including crypto-asset issuers and service providers, as appropriate. Financial regulators must ensure they apply effective regulation, supervision, and oversight to crypto-asset activities and markets – including crypto-asset issuers and service providers – proportionate to the financial stability risk they pose, or potentially pose, in line with the principle “same activity, same risk, same regulation.”
Fifth, Bank of Ghana and Securities Exchange Commission, as appropriate, should require that crypto-asset service providers have in place and disclose a comprehensive governance framework. The governance framework should be proportionate to their risk, size, complexity and systemic importance, and to the financial stability risk that may be posed by the activity or market in which the crypto-asset service providers are participating. It should provide for clear and direct lines of responsibility and accountability for the functions and activities they are conducting.
Sixth, Ghanaian financial regulators, as appropriate, should require crypto-asset service providers to have an effective risk management framework that comprehensively addresses all material risks associated with their activities. The framework should be proportionate to their risk, size, complexity, and systemic importance, and to the financial stability risk that may be posed by the activity or market in which they are participating. Authorities should, to the extent necessary to achieve regulatory outcomes comparable to those in traditional finance, require crypto-asset issuers to address the financial stability risk that may be posed by the activity or market in which they are participating
Seventh, Bank of Ghana and Securities Exchange Commission, as appropriate, should require that crypto-asset issuers and service providers have in place robust frameworks for collecting, storing, safeguarding, and the timely and accurate reporting of data, including relevant policies, procedures and infrastructures needed, in each case proportionate to their risk, size, complexity and systemic importance.
Eighth, financial regulatory bodies should ensure that crypto-asset service providers that combine multiple functions and activities, for example crypto-asset trading platforms, are subject to regulation, supervision and oversight that comprehensively address the risks associated with individual functions as well as the risks arising from the combination of functions, including requirements to separate certain functions and activities, as appropriate
Ninth, Bank of Ghana and Securities Exchange Commission as the regulators and supervisors must develop a deep understanding of the VASP market, its structure, and its role in the financial system and the country’s economy to better inform their assessment of risk in the sector. This may require investing in training, personnel, or other resources that enable supervisors to gain the practical skillsets including upskilling and reskilling and expertise needed to regulate and supervise the range of VA providers and activities described in the VA services or business models.
Tenth, Financial Regulators must develop sound risk assessments and supervisory framework. Regulators must regularly conduct comprehensive risk assessments, particularly for financial integrity and stability, and establish clear supervisory frameworks for VASPs to address emerging risks in the VAs sector. The inherent volatility in VAs requires regulatory safeguards to protect consumers and maintain market stability. This includes clear guidelines for VASPs on managing liquidity and operational risks
Eleventh, given the cross-border nature of many crypto-asset activities, legal and regulatory arrangements that facilitate cross-border supervision and enforcement actions seem warranted. Such arrangements should again be informed by the dedicated risks identified in the stock-taking exercise. However, because many serve Ghana are provided online by foreign service providers, cooperation arrangements with foreign jurisdictions and their supervisory authorities are an important tool to facilitate the supervision of cross-border activities. For virtual assets service providers with a strong imprint on the Ghanaian market, requirements to obtain local licenses combined with a requirement to have some form of legal establishment in Ghana to ensure enforceability could be considered.
Overall, last recommendation is for Ghanaian financial regulators to develop a comprehensive framework that protects all type of investors in virtual currencies, tokens and investments. We note that most jurisdictions currently only focus on protecting security tokens´ holders and suggest this be extended. We call for targeted regulation that is sympathetic to the capacity for virtual assets to innovate and democratize finance.
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