Digital asset regulation is changing fast in 2025. This article summarizes key developments surrounding international harmonization, consumer protection, compliance tech, market surveillance, and much more.
Global Regulatory Framework Evolution
Harmonization of International Standards
For several years, the G20 has been developing a global framework for cross-border cryptocurrency transactions. The framework aims to improve speed, cost, transparency, and access by 2027. The Financial Stability Board (FBS) is monitoring progress toward the framework’s implementation.
The Financial Action Task Force (FATF) Travel Rule is approaching full implementation. According to the FATF’s 2025 survey, 85 of 117 jurisdictions have passed legislation to implement it. The rule requires financial institutions and Virtual Asset Service Providers (VASPs) to collect, verify, and exchange certain customer information before allowing any virtual asset transfer.
Standardized procedures for KYC and AML are also required, as criminals often exploit gaps between national and international enforcement. The FATF, Egmont Group, INTERPOL and the United Nations Office on Drugs and Crime (UNODC) released the Handbook on International Cooperation Against Money Laundering, providing tools to help nations conduct more efficient investigations, and guidance on international coordination for tracking and enforcement.
Regional Regulatory Divergence
While harmonization is advancing, regional diversity remains. The EU’s MiCA framework emphasizes strict consumer protection and stablecoin regulation, and progress toward ‘MiCA 2.0’ is on hold as the region has changed its focus toward the tokenization of traditional assets.
There’s been significant progress in the US in 2025. The GENIUS Act became law on July 18, 2025. The CLARITY Act and an Anti-CBDC measure have advanced in Congress; inter-agency coordination between the SEC and CFTC continues, though no joint rule is finalized.
Across Asia-Pacific, countries like Singapore and Japan have established progressive licensing systems designed to attract crypto innovation and in August, Hong Kong’s regulatory regime for stablecoins came into effect. The UAE’s Virtual Asset Regulatory Authority (VARA) released ‘Rulebook 2.0’ this year, which includes new rules for virtual asset issuance, token distribution controls, clarified collateral wallet standards and stricter controls on margin trading.
Regulatory divergences are fueling regulatory arbitrage, where businesses relocate to friendlier jurisdictions or restructure transactions. Geopolitical tensions and sanctions are also influencing how countries handle cross-border enforcement and asset flows, intensifying global competition to become the next leader in the crypto space.
Central Bank Digital Currencies (CBDCs) Integration
CBDCs are gaining traction. As of July 2025, ~137 countries are exploring or developing them (up from 114 in 2023), and 11 countries had fully launched a CBDC as of Q1 2025.
Regulators are developing frameworks to manage the coexistence of CBDCs and private cryptocurrencies. Exchanges handling both are now required to comply with dual regulatory standards — central bank supervision and crypto asset laws.
Privacy remains one of the most contentious issues. CBDCs offer transparency and anti-fraud potential, yet regulators are imposing strict data protection rules to protect citizens’ financial privacy. 80% of advanced economies (including Canada, Germany and Australia) have released draft regulations on security, privacy, and consumer protection.
Some nations are also considering restrictions on private stablecoins that directly compete with sovereign digital currencies, citing concerns over monetary sovereignty and systemic risk.
Securities and Commodities Classification Framework
Evolved Token Classification Systems
In 2025, regulators are refining how digital assets are legally classified. The CLARITY Act has introduced a new model based on centralization, which supplement the Howey Test. New categories introduced include Digital Commodity, Investment Contract Asset, and Mature Blockchain System.
Whether a token is a security is still dependent on statutory criteria. Tokens with clear utility could be treated as commodities after meeting maturity or exit conditions, while governance and liquidity tokens face hybrid classifications.
To encourage innovation, safe harbor provisions are being introduced. These offer startups regulatory relief during early development phases if they maintain transparency. The SEC outlined a 2025 Safe Harbor Framework providing ‘time-limited’ relief tied to disclosures and a network maturity exit test.
Stablecoin-specific Regulations
Stablecoin regulation has matured considerably this year. Issuers must now maintain fully auditable reserves and undergo third-party audits to verify backing. Under the US GENIUS Act, regular — sometimes monthly — audits are required.
Depending on whether they’re fiat-backed, crypto-collateralized, or algorithmic, issuers may fall under specific licensing regimes. Some regulators promote interoperability standards to ensure stablecoins can operate across payment networks.
For systemically important stablecoins, stress testing and capital buffer requirements are mandatory in some jurisdictions.
DeFi Protocol Governance Requirements
Some authorities are increasingly distinguishing between truly decentralized DeFi protocols — with no central controlling entity and fully permissionless governance — and pseudo-decentralized or hybrid projects where identifiable developers or organizations retain significant control.
Fully decentralized protocols can in some cases fall outside regulatory scopes, but where identifiable control remains, EU authorities may treat involved parties as Crypto-asset Service Providers (CASPs).
Fears about whether decentralization will be stifled under such regulations persist and DeFi activity in Europe has declined. DEX trading volumes fell by 18.9% in Q1 2025 which was the largest quarterly decline ever seen in DeFi. DeFi wallet creation also dropped by 22%, Total Value Locked declined by 10.8% compared to late 2024, and more than 40% of EU-based DeFi traders switched to offshore platforms (mostly in Switzerland and the UAE).
“People who actively run or control parts of a DeFi protocol — for example, those who manage user interfaces, custody assets, or handle transactions — may have to meet AML and disclosure requirements. Passive token holders usually don’t, unless they play a direct operational role. But the US Department of Justice confirmed that “developers of neutral tools, with no criminal intent, should not be held responsible for someone else’s misuse of those tools.”
Organizations like IEEE and ISO are developing standards for smart contracts which may inform auditing in future.
Market Integrity and Consumer Protection Measures
Market Surveillance Requirements
Exchanges are deploying surveillance tools to detect manipulation, wash trading, and insider activity. This is mandatory in some jurisdictions. For example, the Monetary Authority of Singapore (MAS) introduced new regulation in June 2025 that mandates Digital Payment Token service providers (DPTSPs) to monitor order flow and trading activity in real-time. They must be able to detect patterns like wash trading and spoofing.
Risks like cross-chain laundering — where criminals exploit cross-chain interoperability — may be better detected by cross-platform data sharing. Regulations requiring exchanges to share user data directly with tax authorities are also being enforced. The EU’s DAC8 directive, effective from January 1, 2026, is one example.
Volatility control mechanisms, including circuit breakers, are being adapted from traditional markets to stabilize extreme crypto price swings. Spot-exchange controls will vary by platform.
Investor Protection Frameworks
Investor protection is becoming obligatory. In some jurisdictions, exchanges must now provide risk disclosures that clearly outline risks including asset volatility and custody risks. In some regions, including the EU, custodians have to implement comprehensive safeguards. Insurance may be used in some cases, but it’s not universally mandated.
Custody and Private Key Management Regulations
Tactics like multi-signature setups, key sharding, and strict access controls are strongly encouraged, helping organizations comply with security requirements. Some regions are imposing minimum cold storage ratios.
Compliance Technology and Infrastructure
Regulatory Technology (RegTech) Standards
As mentioned, a notable trend is the increased use of real-time monitoring for AML. In New York, for example, NYDFS expects all state-regulated banking organizations that engage in (or consider) crypto activity to implement blockchain analytics tools.
Requirements around third-party vendor risk management are strengthening. Financial institutions and crypto service providers must demonstrate that their compliance and monitoring solutions meet stringent standards for reporting accuracy and risk detection.
On-chain Compliance Mechanisms
On-chain compliance methods like ‘zero knowledge proofs’ are increasingly used to prove compliance while retaining user control over data. ZKPs can be used for identity verification, without exposing sensitive information. They also address GDPR’s right to be forgotten by keeping personal data off-chain.
Blockchain protocols are deploying smart contracts that enforce compliance autonomously, such as freezing or rejecting suspicious transactions based on embedded risk parameters.
Cross-Chain Compliance Challenges
Regulators face oversight gaps as crypto activity expands across multiple chains. In fact, recent forensic reports link over $21.8 billion in laundered assets to DEXs, crypto mixers, coin swap services, and bridges.
Earlier compliance solutions were designed for exchanges with clear KYC endpoints, but cross-chain transactions complicate matters. Under the Travel Rule, service providers have to include originator and beneficiary details in transactions that exceed threshold amounts. But decentralized platforms like DEX swaps and bridges aren’t designed to make that data available. And different jurisdictions having their own rules makes it harder to track global cross-chain transactions.
To tackle these challenges, international collaboration and more advanced compliance monitoring tools will be necessary.
Enforcement and Liability
Enhanced Enforcement Mechanisms
Despite the challenges mentioned above, international enforcement is becoming faster and more coordinated. Regulators have created specialized crypto enforcement divisions and agencies like the SEC and CFTC offer whistleblower programs to incentivize insiders to report violations.
Cross-border asset recovery is also strengthening. For example, INTERPOL has been holding sessions across Asia Pacific, the Americas, Europe, and Africa to strengthen countries’ abilities to identify, trace and seize illicit assets (including crypto) that criminal networks use to operate and expand. Attendees include representatives from national police forces, judicial authorities, financial intelligence units, and asset recovery specialists.
Liability Distribution in Decentralized Systems
Courts have ruled that DAOs lacking proper legal structures can be classified as unincorporated partnerships. This exposes governance participants, members and investors to personal liability.
New frameworks are emerging that distribute liability based on control and participation, with governance token holders, developers, and node operators sharing accountability in proportion to their role in the system. Some jurisdictions have gone further by establishing ‘DAO registration’ or similar official recognition systems, providing these entities with a legal identity that clarifies who’s liable for operational decisions and potential misconduct.
Penalties
Penalties are increasingly tiered based on severity and intent. Over $1.06 billion in penalties were imposed by 2025 Q3, the majority coming from regulators in North America.
Risk Management and Insurance Implications
Crypto Insurance Market Development
Crypto asset insurance is becoming a regulatory expectation as many jurisdictions require firms to hold insurance against cyberattacks and operational failures. Standardized risk assessment models are emerging to evaluate smart contract and custody vulnerabilities.
Parametric insurance, where payouts are triggered automatically by predefined on-chain events, is far from mainstream but becoming more common, while reinsurance structures are expanding to distribute catastrophic crypto risks.
Risk Management Certification
Crypto businesses are increasingly required to adopt formal risk management frameworks overseen by designated Chief Risk Officers or equivalent roles responsible for compliance, operational resilience, and crisis management.
Regulatory expectations now mandate regular stress testing for extreme market volatility and comprehensive disaster recovery planning as key requirements of maintaining licensure.
Systemic Risk Mitigation
Regulators are developing mechanisms to prevent contagion between the crypto ecosystem and traditional finance. In traditional finance, central banks and institutions can intervene during crises. With DeFi, this isn’t possible, meaning crises can escalate rapidly without the means for containment.
Monitoring systems are necessary to track interconnections between banks, stablecoins, and DeFi platforms to identify potential contagion risks. Supervisors and venues monitor systemic risk, and the best of which should periodically test cross-exchange circuit breakers and coordinated trading halts for emergency response.
Takeaways for Brokers and Clients
2025 has seen vast changes in crypto regulation, particularly in the US. International standards are gradually harmonizing, robust transaction monitoring is becoming a widespread requirement, and token classification is changing. DeFi liability remains a gray area, penalties are higher than ever, and enforcement efforts are strengthening.
Crypto asset insurance is crucial for firms to demonstrate robust risk management practices. Relm offers tailored digital asset insurance for exchanges, custodians and more, backed by deep regulatory expertise. Contact us today to learn more.
