Literature Review: Development of Cryptocurrency Regulatory and Operational Frameworks

Abstract

This literature review examines the development of cryptocurrency regulatory and operational frameworks through the synthesis of academic research, international standard-setting, and national supervisory practice. Drawing on foundational economic and technical scholarship, the review traces how distributed ledger technologies shifted regulatory discourse from technology-centric novelty toward function- and activity-based financial regulation. The analysis integrates authoritative sources from multilateral institutions, including the Financial Action Task Force, Financial Stability Board, International Monetary Fund, and Bank for International Settlements, alongside primary guidance from United States financial regulators, to assess how global policy objectives were translated into enforceable domestic regimes.

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Using a qualitative, policy-oriented review methodology, the study identifies three core dimensions shaping contemporary crypto regulation: risk-based oversight, functional legal classification, and operational enforceability. The findings demonstrate strong international convergence around anti–money laundering and counter–terrorist financing requirements, stablecoin governance standards, and prudential safeguards, while national authorities adapted existing statutory frameworks to address investor protection, market integrity, and safety and soundness concerns. Operational guidance on custody, settlement finality, interoperability, and resilience emerged as a critical complement to legal policy, ensuring that regulatory objectives could be implemented in practice.

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The review concludes that cryptocurrency regulation has evolved through an iterative and coordinated process rather than ad hoc intervention. Contemporary frameworks reflect a layered architecture grounded in international standards, refined through domestic supervision, and continuously informed by technological and market developments. These findings provide a policy-relevant foundation for Reserve Bank–affiliated research and support ongoing efforts to balance financial innovation with systemic stability, consumer protection, and regulatory coherence.

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Background

The emergence of cryptocurrency and distributed ledger technologies represents a structural shift in financial intermediation, settlement, and recordkeeping. Early academic literature in cryptography, computer science, and economics established that blockchain-based systems enable decentralized consensus, immutable transaction records, and programmable financial logic without reliance on centralized intermediaries (Narayanan et al., 2016; Szabo, 1997). Economic analyses further demonstrated that distributed ledgers reduce verification and networking costs, thereby enabling new organizational and market structures that challenge traditional financial institutions and regulatory models (Catalini & Gans, 2016).

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Initially, policymakers viewed cryptocurrencies primarily as technological novelties or fringe payment mechanisms. However, rapid market growth, increasing retail participation, and the emergence of stablecoins reframed crypto-assets as systemically relevant financial instruments. This shift coincided with broader post-2008 regulatory reforms emphasizing macroprudential supervision, systemic risk mitigation, and technology-enabled compliance mechanisms (Arner et al., 2017). As a result, regulatory discourse evolved from questioning whether crypto-assets should be regulated to determining how existing regulatory objectives could be applied effectively to novel digital asset architectures.

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A critical development in the literature is the transition from technology-based regulation to functional and activity-based regulation. Rather than regulating blockchains per se, policymakers increasingly classified crypto-assets according to their economic function—payments, investment, settlement, or governance—thereby integrating them into existing legal and supervisory frameworks. This approach underpins contemporary crypto policy across jurisdictions and is reflected consistently in multilateral guidance, national regulations, and supervisory enforcement actions.

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Methods

This literature review employs a qualitative synthesis of authoritative academic research, multilateral policy documents, and primary regulatory guidance issued by national authorities. Sources were selected using three methodological criteria:

1. Institutional authority – Publications from recognized standard-setting bodies and regulators, including the Financial Action Task Force, Financial Stability Board, International Monetary Fund, and Bank for International Settlements.

2. Policy relevance – Documents that directly informed or shaped crypto regulatory frameworks, supervisory practices, or enforcement approaches.

3. Scholarly grounding – Peer-reviewed or widely cited academic works that explain the technical, economic, or regulatory foundations of crypto systems.

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U.S. regulatory guidance from the U.S. Securities and Exchange Commission, Financial Crimes Enforcement Network, and Office of the Comptroller of the Currency was analyzed to assess how international standards were translated into domestic supervisory regimes. The review emphasizes doctrinal consistency, regulatory intent, and operational feasibility rather than speculative or market commentary.​

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Results​

International Standard-Setting and Risk-Based Regulation

The literature demonstrates that international coordination was foundational to crypto regulatory development. FATF guidance formally incorporated virtual assets and virtual asset service providers (VASPs) into the global AML/CFT framework, extending customer due diligence, recordkeeping, and travel-rule obligations to crypto intermediaries (FATF, 2021). This move effectively eliminated regulatory ambiguity regarding crypto’s status under financial crime prevention regimes and compelled national regulators to align domestic rules accordingly.

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Simultaneously, the Financial Stability Board identified stablecoins as a distinct category of crypto-assets with potential systemic implications. Its early reports emphasized risks related to governance opacity, reserve adequacy, cross-border payment substitution, and operational fragility (FSB, 2019). Subsequent FSB frameworks expanded this analysis into a comprehensive international regulatory baseline covering authorization, prudential requirements, and supervisory coordination for crypto-asset activities (FSB, 2023). The literature reflects broad consensus that stablecoins—rather than unbacked crypto-assets—pose the most immediate systemic risk due to scale, interconnectedness, and payment-system substitution.

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National Regulatory Translation and Legal Classification

At the national level, regulators adapted existing statutory authorities rather than creating entirely new crypto-specific regimes. In the United States, the SEC articulated a functional approach to digital assets through its investment-contract framework, clarifying that tokenized instruments may qualify as securities depending on economic substance rather than technological form (SEC, 2019). This framework became a cornerstone for enforcement actions and compliance strategies, reinforcing disclosure, investor protection, and market integrity objectives.

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FinCEN’s guidance clarified that convertible virtual currency administrators and exchangers qualify as money services businesses, thereby subjecting them to federal AML/CFT obligations (FinCEN, 2019). This regulatory clarification closed gaps in compliance coverage and aligned U.S. practice with FATF standards. Meanwhile, banking regulators addressed the operational risks of crypto integration by issuing interpretive letters governing custody, settlement, and payment activities involving digital assets, conditioned on robust risk management and supervisory non-objection (OCC, 2020; OCC, 2021).

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Operational Frameworks and Supervisory Implementation

The literature highlights that regulatory effectiveness depends on operational feasibility. BIS and CPMI research emphasized the importance of custody safeguards, settlement finality, interoperability, and cyber resilience as prerequisites for integrating crypto-assets into the regulated financial system (BIS/CPMI, 2019). These operational considerations informed supervisory expectations for both banks and non-bank financial institutions.

 

IMF analyses further refined policy differentiation by distinguishing unbacked crypto-assets from stablecoin arrangements and tokenized claims on real assets. IMF FinTech Notes advocated proportional regulation, recommending stricter prudential oversight for stablecoins with systemic potential while applying conduct-based regulation to speculative crypto-assets (IMF, 2022a; IMF, 2022b). This distinction is now reflected across multiple jurisdictions and underpins the emerging global consensus on crypto regulation.

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Collectively, the literature indicates that crypto regulatory frameworks have matured from conceptual policy discussions into layered, enforceable regimes that integrate legal classification, risk-based supervision, and technical implementation standards.

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Conclusion

This literature review demonstrates that contemporary cryptocurrency regulation is the product of a deliberate and iterative policy process grounded in academic research, international coordination, and national supervisory adaptation. Far from being fragmented or reactionary, crypto regulatory frameworks exhibit substantial convergence around functional classification, risk-based oversight, and operational enforceability.

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For Reserve Bank–affiliated research and policy initiatives, the literature underscores three key implications. First, effective crypto policy requires alignment with international standards to mitigate regulatory arbitrage and cross-border risk. Second, operational considerations—custody, settlement, governance, and resilience—are as critical as legal classification in determining regulatory success. Third, adaptive supervision and continuous feedback are essential as crypto markets and technologies evolve.

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Future regulatory development will likely focus on stablecoin oversight, tokenized financial instruments, and the integration of distributed ledger infrastructure into existing payment and settlement systems. The reviewed literature provides a robust foundation for policy engagement that balances innovation enablement with financial stability, market integrity, and consumer protection.

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References

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Arner, D. W., Barberis, J. N., & Buckley, R. P. (2017). FinTech, RegTech and the reconceptualization of financial regulation. Northwestern Journal of International Law & Business, 37(3), 371–414.

 

Bank for International Settlements. (2022). Results of the 2022 BIS survey on central bank digital currencies. BIS.

 

Bank for International Settlements & Committee on Payments and Market Infrastructures. (2019). Investigating the  impact of global stablecoins. BIS.

 

Catalini, C., & Gans, J. S. (2016). Some simple economics of the blockchain (NBER Working Paper No. 22952). National Bureau of Economic Research.

 

Financial Action Task Force. (2021). Updated guidance for a risk-based approach to virtual assets and virtual asset  service providers. FATF.

 

Financial Crimes Enforcement Network. (2019). Application of FinCEN’s regulations to certain business models  involving convertible virtual currencies (FIN-2019-G001). U.S. Department of the Treasury.

 

Financial Stability Board. (2019). Regulatory issues of stablecoins. FSB.

 

Financial Stability Board. (2023). Proposed framework for the international regulation of crypto-asset activities. FSB.

 

International Monetary Fund. (2022a). Regulating the crypto ecosystem: The case of unbacked crypto assets (IMF  FinTech Note No. 2022/007). IMF.

 

International Monetary Fund. (2022b). Regulating the crypto ecosystem: The case of stablecoins and arrangements (IMF FinTech Note No. 2022/008). IMF.

 

Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and cryptocurrency technologies: A comprehensive introduction. Princeton University Press.

 

Office of the Comptroller of the Currency. (2020). Interpretive Letter No. 1170: Authority of a national bank to provide cryptocurrency custody services. OCC.

 

Office of the Comptroller of the Currency. (2021). Interpretive Letter No. 1172: Authority of a national bank to use independent node verification networks and stablecoins for payment activities. OCC.

 

Securities and Exchange Commission. (2019). Framework for “investment contract” analysis of digital assets. SEC.

 

Szabo, N. (1997). The idea of smart contracts. First Monday, 2(9).