Hybrid Regulation for Virtual Asset Ecosystems

By Richmond Akwasi ATUAHENE (Dr)

This study outlines a strategy for overseeing and controlling virtual assets (cryptocurrencies) in Ghana, which requires a comprehensive financial regulatory framework.

The Central Bank of Ghana is currently working on creating rules and structures for the registration, anti-money laundering compliance, and internal controls of Virtual Asset Service Providers (VASPs).

This regulatory initiative seeks to reduce dangers connected to these assets, such as those concerning financial security, safeguarding consumers, and preventing illegal actions.

The process of controlling virtual assets such as digital currencies requires creating a regulatory system that tackles financial security, safeguarding users, and stopping illegal actions. This system needs to take into account the specific traits of digital assets and their linkages with the conventional financial sector.

A multifaceted financial regulatory strategy encompasses principle-driven regulation, risk-focused regulation, adaptable and flexible regulation, self and co-regulation, and enforcement-based regulation. Ghana's route to governing virtual assets will feature a thorough approach to tackle the distinct challenges and possibilities arising from this developing technology.

The emphasis lies on creating a strong regulatory structure that encourages responsible advancement, safeguards consumers, and reduces possible dangers to the financial system. Hence, "multi-faceted regulatory approaches" refers to the use of various techniques in implementing regulations, such asregulatory approaches focused on principles, risk-oriented regulation, and rule-driven regulation,agile and adaptable regulatory framework, self-regulation and co-regulation, as well as enforcement-based regulation.

Over the past ten years, there has been a remarkable increase in the number of new digital tools that offer more convenient, swift, and cost-effective global payments and transfers. These digital forms of value and legal entitlements make up a wide (and growing) range of assets.

Common terms used in marketplaces for these new products are cryptocurrencies, digital currencies, crypto assets, and virtual assets, all of which refer to systems for storing and representing value and rights in a digital format. Some of the most famous digital assets use cryptographic technology to protect transactions and regulate the creation of new units, supported by distributed ledger technology (DLT), like blockchain, to create a ledger (or database) that is managed across a network.

The first of these tools—Bitcoin—was introduced in 2009 (IMF 2021). According to the FSB (2022), crypto-assets are a form of digital asset issued by the private sector that mainly rely on cryptography and distributed ledger or comparable technology. In its report on crypto-assets released in February 2022, the FSB stated that "crypto-assets markets are rapidly developing and may reach a stage where they pose a risk to global financial stability." Virtual assets, also known as crypto-assets, are any digital representations of value that can be digitally traded, transferred, or used for payments. This definition excludes digital representations 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 initial FATF updates in October 2018 involved adding new definitions to the glossary for "virtual assets" and "virtual asset service providers" (VASPs). A "virtual asset" refers to a "digital representation of value that can be traded or transferred digitally, and can be used for payment or investment purposes." This comprehensive definition is broad enough to accommodate the potential addition of emerging technologies. The technology's borderless characteristics, the interconnectivity within the crypto-asset market, and the possibility of integration with the traditional financial system support the need for a worldwide approach to regulating crypto-assets.

The Financial Action Task Force (FATF) has been closely observing changes in the cryptocurrency industry and has established international, mandatory guidelines to stop the abuse of digital assets for money laundering and funding terrorism. In recent years, several nations have begun to impose rules on this sector, while others have completely banned virtual currencies. Nevertheless, most countries still lack proper regulations in place.

These deficiencies within the worldwide regulatory framework have led to substantial gaps that may be taken advantage of by lawbreakers, extremists, and unstable governments. A cryptocurrency ecosystem represents a depiction of the cryptocurrency network. Cryptocurrency ecosystems consist of the originators, developers, coders, miners, intermediaries, users, media outlets, and governmental bodies.

Managing digital assets is a challenging and developing field of law, with different regions taking diverse strategies. Several nations, such as Ghana, are facing the challenge of balancing the advantages of digital assets, like increased access to financial services, against the risks they bring, including issues related to consumer safety, stability of the financial system, and possible use in illegal activities. The global characteristic of the technology, the interconnection within the cryptocurrency ecosystem, and the possibility of connections with the conventional financial system support the need for a worldwide framework for regulating digital assets.

As the popularity of digital currencies continues to rise, authorities have needed to assess the risks associated with this decentralized form of money and decide on the extent or method of regulation for virtual currency. For these digital assets, there were two options: pursue compliance with existing regulations or remain unregulated, possibly functioning in an illegal manner beneath the surface.

The regulation of cryptocurrency could pose the greatest obstacle to its widespread adoption. Different regions have adopted diverse regulatory strategies, influenced by factors such as the development level of their local markets, the expertise of both public and private entities, the extent of real or perceived harm within the market, and regional policy focuses. These differing approaches have resulted in fragmented regulations, heightened risks due to potential regulatory loopholes, and confusion regarding the legal standing of cryptocurrencies in various locations.

For instance, a crypto token based on DLT could be referred to as a "virtual asset" in one region, a "crypto token" or even a "virtual digital asset" in another (with varying definitions), and prohibited in a third. This has prompted the idea that a global, unified approach to defining and regulating crypto-assets is necessary.

Current scenario of virtual assets (crypto-assets) in Ghana

For many years, the Bank of Ghana has viewed cryptocurrencies as uncontrolled and potentially dangerous. In public announcements issued on 22 January 2018 and 9 March 2022, the central bank emphasized that cryptocurrencies are not considered legal currency in Ghana, are not governed by any local legislation, and are not supported by any type of assurance. It directed commercial banks and other authorized financial entities to avoid involvement. This stance resulted in a legal gap.

Cryptocurrency transactions persisted, but they operated in secrecy, without oversight, in an informal manner, and were potentially vulnerable to misuse. Investors had no legal remedies, operators faced uncertainty, and financial institutions lacked guidance. Nevertheless, activity involving digital assets increased. In August 2024, the Bank of Ghana released draft regulatory guidelines intended to bring order to the cryptocurrency market. These guidelines suggested compulsory registration for Virtual Asset Service Providers (VASPs), anti-money laundering (AML) regulatory requirements, and rigorous internal control mechanisms.

The guidelines aimed to safeguard the financial system, minimize involvement in illegal activities, and bring some structure to an unpredictable environment. Building on these guidelines, the Governor of the Bank of Ghana has stated (during the African Leaders and Partners Forum 2025 in Washington, D.C.) that the central bank plans to start regulating virtual assets by the end of September 2025 by passing a VASP law.

As stated by the Governor, the suggested VASP law will grant the Bank of Ghana the authority to license and monitor the activities of organizations involved in the digital asset sector. It will also facilitate collaborative supervision between the Bank of Ghana and the Securities and Exchange Commission (SEC) across a wide array of activities, such as cryptocurrencies, digital fiat currencies, tokens, and blockchain-based systems (Bentsi-Echill, Letsa & Ankomah, 2025).

In the last three (3) years, the adoption of different digital assets among Ghanaians has seen a notable rise due to reasons including widespread mobile money usage, a young and tech-oriented population, high internet access, and the emergence of online companies providing crypto and virtual asset services, commonly referred to as Virtual Asset Service Providers (VASPs) (Bank of Ghana document from August, 2024). After conducting a thorough internal assessment of the growing interest in digital assets such as cryptocurrencies like Bitcoin and Tether (USDT) in Ghana, along with discussions with various parties, the Bank of Ghana released draft guidelines on digital assets.

These recommendations aim to reveal the Bank's suggested regulatory actions and encourage input from the industry and the general public. This aligns with the Bank's dedication to consistently develop a supportive regulatory framework that fosters financial inclusion and strengthens financial stability (BoG Draft Guidelines on Digital Asset, August 2024).

The cryptocurrency and blockchain technology scene in Ghana is changing, with more people showing interest and using digital assets, backed by an expanding range of exchanges and projects within the nation's financial system. This development has been influenced by elements like widespread mobile money use, a young and tech-oriented population, high internet access among Ghanaians, and the impact of online regional and international companies providing crypto or virtual asset services, especially VASPs.

As per the Bank of Ghana (2024), the digital assets landscape in Ghana is mainly managed by organizations that enable the purchase, sale, and exchange of virtual currencies. These platforms offer liquidity and access to cryptocurrencies, with stablecoins and Bitcoin being the most commonly known and used. Moreover, Ether (within the Ethereum framework) and several other cryptocurrency alternatives (altcoins) also have considerable presence in the market. While these transactions involve smaller volumes compared to overall digital payments, the rapid development of digital assets necessitates clear regulations to maintain financial stability and safeguard consumers.

With respect to regulation, the Bank of Ghana has clarified the regulatory status of virtual assets by issuing notices numbered BG/GOV/SEC/2018/02 and BG/GOV/SEC/2022/23 to the public, offering specific instructions to authorized entities. Furthermore, the Bank has taken a cautious "wait-and-see" stance, actively observing developments in the cryptocurrency market, including limited interactions with stakeholders in 2023. This strategy aims to improve the Bank's readiness to ensure financial stability and establish a suitable regulatory system in line with changing trends.

In general, Ghana's digital assets environment has been lively, with growing attention towards virtual assets and blockchain technology. Nevertheless, the Bank of Ghana recognizes regulatory difficulties and is striving to establish a more organized framework to encourage secure, responsible, and long-term development and advancement within the industry.

The absence of a registration or licensing system in Ghana for cryptocurrency service providers increases the challenge for users in identifying trustworthy from untrustworthy providers. Due to the high occurrence of scams and other illegal activities within the cryptocurrency sector, retail users who have limited knowledge about crypto assets are particularly at risk, as shown by the VASP National Risk Assessment.

While not a complete solution for preventing criminal behavior (or reducing ML/TF risks), both public and private sector participants have indicated that a registration or licensing system would be highly beneficial for users in helping them identify legitimate and illegitimate players in this area. Registered or licensed entities, such as VASPs, would likely find it easier to build local banking connections, which could decrease the motivation for retail users to rely on unregulated payment systems and P2P networks. The Bank of Ghana is adopting a step-by-step strategy for regulating virtual assets, beginning with compulsory registration for Virtual Asset Service Providers (VASPs) and progressively introducing more extensive regulations.

The Bank of Ghana (BoG) has provided all Virtual Asset Service Providers (VASPs) functioning in the country with a deadline of August 15, 2025, to register with the central bank, highlighting the route toward regulating and overseeing the crypto-asset environment in Ghana. The Bank of Ghana (BoG) has issued an instruction requiring all Virtual Asset Service Providers (VASPs) operating within the nation to register with the central bank by August 15, 2025. This initiative is aimed at enhancing financial stability and establishing a thorough regulatory system for the expanding digital asset market.

All local and foreign VASPs that provide services to individuals in Ghana must register, regardless of whether they operate through a physical location or online services. The central bank stated, "This initiative seeks to ensure that the upcoming legal and regulatory measures for VASPs are shaped by market trends and consistent with global standards."

The BoG stated that registration is not equivalent to a permit to function or suggest legal acknowledgment or endorsement. Nevertheless, non-compliance could lead to penalties or exclusion from future licensing possibilities. The central bank's action occurs against the backdrop of growing international initiatives to place virtual asset operations under regulatory control, mainly to deter financial crimes, safeguard consumers, and maintain the stability of financial markets. Ghana, similar to other developing economies, is witnessing swift expansion in digital financial services, including cryptocurrency-related activities.

In Ghana, current regulations are unable to be applied to specific crypto-asset activities because of challenges in classifying these assets as payment instruments or financial instruments (such as securities, commodities, and/or derivatives) under existing rules. The routes for regulating, supervising, and overseeing crypto-asset activities and markets are essential for maintaining financial stability and protecting consumers. The Ghana Financial Stability Council needs to play an active role in creating a national regulatory framework for crypto-assets, including "global stablecoins," to manage possible risks. The GFSC should highlight the importance of consistent and thorough regulatory methods across all financial service sectors, along with strong international cooperation, coordination, and information exchange. Regulators are focusing on identifying and managing the risks connected to crypto-assets, including potential threats to financial stability, particularly from "global stablecoins." Regulations in the country should aim to protect consumers by ensuring transparency, disclosure, and effective risk management practices regarding crypto-assets and related services. The main objective is to reduce the potential risks that crypto-asset markets present to the overall financial system, including their connections with traditional financial institutions. Ghana's current approach has resulted in a regulatory gap in the digital asset sector. Crypto activities continue through peer-to-peer networks and informal platforms, but without legal clarity or consumer safeguards. This puts users at risk of fraud and market fluctuations, while service providers operate without formal rules or licensing requirements. A new legal framework will help address these issues and bring structure to the system. The Bank of Ghana’s decision to regulate cryptocurrency indicates a clear change in its policy position. Digital assets have remained unregulated for many years, but their increasing usage and lack of oversight have created a legal and economic gap. Regulation alone won't eliminate all risks, but it establishes a foundation for control, investor confidence, and future growth (Bentsi-Echill, Letsa & Ankomah, 2025). Ghana must create a financial regulatory strategy and suitable regulatory framework in response to emerging trends within the expanding virtual assets ecosystem.

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Regulatory Challenges and Difficulties in Overseeing and Controlling Crypto-Asset Activities and Markets.

FATF (2018) and FSB (2022) highlighted various problems and difficulties in overseeing and regulating crypto-asset activities and markets, which are connected to (i) The "anonymity" aspect:Certain cryptocurrencies, such as Monero, are developed with advanced privacy mechanisms including ring signatures and stealth addresses. These elements complicate the tracking of transactions and the identification of users, creating difficulties for regulators trying to enforce anti-money laundering (AML) and counter-terrorist financing (CFT) protocols. (ii) the scope of regulatory authority and its effectiveness, along with possible shortcomings or obstacles in its implementation; (iii) the widespread utilization of distributed and decentralized technology within crypto-asset operations; (iv) the successful regulation and oversight of crypto-asset activities and markets across international boundaries; (v) risks associated with wallets and custody services; and (vi) risks connected to trading, lending, and borrowing activities.

1. The regulation of the virtual assets (crypto-assets) sector faces significant challenges related to authority and scope.

Obstacles in overseeing and controlling crypto-asset operations and markets stem from the availability and use of current regulatory authorities, particularly concerning: (i) the classification of crypto-assets and actions that could threaten financial stability and might fall outside the scope of regulatory oversight; (ii) implementing regulations when activities violate local rules; and (iii) dangers linked to specific technologies used in crypto-asset activities.

1. Another significant regulatory issue involves decentralized finance (DeFi) protocols, anonymous entities, and governance structures..

The widespread application of distributed and decentralized technology in the functioning and/or management of crypto-asset activities has led to transparency issues and a shortage of responsibility. It can be challenging to determine which entities or individuals are responsible for ensuring proper governance and adherence to regulations. Within the "Decentralized Finance" (DeFi) ecosystem, DeFi protocols offer various types of governance frameworks, some of which may make it unclear who is in charge or complicate the enforcement of regulatory measures.

1. The global aspect of cryptocurrency assets presents difficulties in regulation, oversight, and implementation.

The global aspect of cryptocurrency assets presents difficulties in regulation, oversight, and enforcement. These issues stem from (i) variations in how different regions classify these assets; and (ii) international cooperation frameworks that might not meet the evolving demands for cross-border and multi-sector collaboration and data exchange. The same digital asset could be categorized differently across various regions, or it might be regulated in certain areas but not in others. This can lead to potential risks of regulatory arbitrage or avoidance, where entities might organize their operations to bypass the stricter rules of specific jurisdictions. Current international regulatory cooperation mechanisms were generally designed for authorities overseeing conventional financial institutions and are often limited to particular sectors. These frameworks may require reassessment to ensure they are sufficient for facilitating information exchange and coordination concerning the regulation, monitoring, and enforcement of crypto-asset activities, even when those activities span multiple sectors across different regions.

1. Management of risks associated with wallets and custody services

Wallet services serve as a crucial user interface for managing all cryptocurrency-related activities and are essential in protecting users' digital assets. The offering of wallet services can be either custodial or non-custodial. In reality, these services have distinct economic functions and risk levels. Several wallet services, especially non-custodial ones, remain currently unregulated.

■ Non-custodial wallets are approaches that let users directly engage with a blockchain and its features. These wallets can consist of software or other "hot wallet" services that users can download and utilize on their personal devices, or "cold wallet" solutions, like the user's own hardware. Non-custodial wallets allow users to take full control of their cryptocurrency assets and suggest that only the users have the ability to access or retrieve their private keys. Typically, users are in charge of managing their own wallets. However, if the wallet service is affected by a hardware malfunction.

1. Managing risks associated with trading, lending, and borrowing platforms.

Trading, lending, and borrowing can increase the spread of financial risks, as these activities establish significant connections within the cryptocurrency market and between the cryptocurrency market and the broader financial system. Crypto-asset trading services are provided by platforms that operate like exchanges in traditional finance. These trading platforms connect the orders of multiple buyers and sellers, enabling users to conduct various transactions such as exchanging different crypto-assets or against fiat currencies, lending and borrowing crypto-assets, investing in funds, derivatives, or other investment products related to crypto-assets. The main risks associated with marketplace trading are similar to those found in traditional exchanges, including operational interruptions, fraudulent or manipulative trading, and failures or delays in transaction execution and settlement. Due to the crucial role played by trading platforms, the occurrence of these risks could result in market failure, loss of confidence, and liquidity issues across the wider crypto-asset markets. Currently, in jurisdictions where crypto-assets are not categorized as financial instruments (such as commodities, securities, and/or derivatives) or payment instruments, many crypto-asset trading platforms remain unregulated. In other regions where crypto-assets are considered financial instruments, platforms may be operating without adhering to relevant regulations.

e.\xa0\xa0\xa0\xa0\xa0 Crypto-asset transactions involve a greater potential for money laundering.

In June 2018, the FATF issued a report on the potential money laundering and terrorist financing risks associated with virtual currencies, pointing out several areas of worry regarding virtual assets: A significant level of anonymity; cryptocurrency transactions offer more privacy than conventional non-cash payment systems. Individuals can exchange virtual currency online, and transactions typically involve non-face-to-face customer interactions, enabling anonymous funding (either through cash or third-party sources via virtual exchanges that fail to properly verify the origin of the funds).

Lack of centralized oversight: Law enforcement is unable to investigate or confiscate assets from a single central location or entity (administrator) — however, authorities can target individual exchanges to obtain client information that the exchange might gather. Therefore, virtual currency transactions offer a degree of anonymity that is not available through traditional credit and debit cards or older online payment systems. Cross-border transactions; AML/CTF risks increase with global reach as it complicates monitoring and enforcement.

Review of Literature on Multi-Dimensional Financial Regulatory Methods in the Regulation and Oversight of the Virtual Assets (Crypto-Assets) Ecosystem

A proactive and adaptable strategy is necessary for regulating crypto assets, aiming to maintain a balance between fostering innovation and ensuring stability. By analyzing international best practices, we can obtain important lessons to build regulatory systems that promote development, safeguard consumers, and enhance confidence in this ever-evolving digital environment. Consistent and globally aligned regulatory clarity is essential for consumer protection, the establishment of reliable markets, and the ongoing advancement of this transformative technology. Different regulatory methods have been implemented or are under consideration by regulators and policymakers. This section explores several jurisdictional examples related to a broad range of proposed financial regulatory approaches, including principle-based, risk-based, agile regulation, self and co-regulation, and finally, enforcement-based regulation (World Economic Forum, White paper, May 2023).

4.i Diverse Financial Regulatory Methods in overseeing and regulating Ghana's virtual assets ecosystem.

1. Regulatory approach focused on principles or results-oriented regulation

Regulatory frameworks based on principles define the general guidelines and desired outcomes. Rather than specifying detailed rules, this method focuses on the results and performance levels expected. The principles-based approach highlights "same activity, same risk, same regulation," underlining the significance of a uniform global regulatory strategy to reduce regulatory arbitrage.

Although businesses have some flexibility in achieving the desired results, this method is typically backed by guidelines, industry norms, and other non-mandatory strategies that offer clear guidance. It is crucial that outcomes are long-lasting to ensure stability and predictability for companies. The crypto-assets environment is a rapidly changing field that demands ongoing evaluation of new risks and business models. Successful policymaking advantages from a principle-focused, outcome-oriented approach, enabling integrated regulation to match the intended results.

Outcome-focused regulation establishes guidelines and intended results rather than specific rules. This type of regulation encourages technological advancement and adaptability. Nations such as the United Kingdom, Liechtenstein, and Gibraltar have implemented a principles-based regulatory framework for governing virtual assets (crypto assets).Hong Kong’sThe Securities and Futures Commission has implemented a technology-neutral, results-focused strategy for virtual asset storage, emphasizing strong asset safeguarding techniques instead of particular hardware options. Nevertheless, ambiguity for companies and assessing compliance continued to be the main difficulties in principle-driven regulation.

B Risk-based financial regulation

According to FATF (2022), a successful risk-based approach should take into account the characteristics, variety, and level of development of a nation's VASP industry, the risk level within the sector, the risk profile of individual VASPs operating in the sector, and the country's legal and regulatory framework, considering the cross-border, internet-driven, and worldwide scope of most VA activities. A well-functioning risk-based system should align with a country's policy, legal, and regulatory strategy. Ghana's policy, legal, and regulatory structure should also mirror the wider financial sector objectives the country is aiming for, such as financial inclusion, financial stability, financial integrity, and financial consumer protection, while also factoring in elements like market competition.

A "Risk-Based Approach" (RBA) is a connected idea where regulatory and oversight actions are implemented according to the risks associated with specific activities or entities, considering the constraints of available supervisory resources. Within the scope of financial inclusion, implementing an RBA involves accurately recognizing the risks from individual transactions, users, or Payment Service Providers (PSPs), in order to adequately address those risks and maintain access to these services for legitimate individuals.

Regulations that are risk-focused depend on the rule or standard-setting body's evaluation of the risks pertinent to their responsibilities, along with determining the suitable degree of intervention based on the level of risk. If an entity engages in low-risk activities, the regulations would be simplified, resulting in reduced compliance obligations. This allows regulators to allocate their resources effectively, directing attention towards more significant risk areas. Evaluating different alternatives should also be part of a risk-based approach. For example, payment stablecoins, which represent a digital version of cash, are similar to physical cash in circulation. Risk assessments should be developed considering the appropriate comparison. Within the cryptocurrency asset environment, because of the increased financial applications, both global organizations and national regulators have supported a risk-based regulatory strategy to ensure fairness and appropriate measures.

Nevertheless, careful attention must be paid to the difference between centralized and decentralized organizations. Since the majority of DeFi platforms do not hold or have direct access to user funds, the associated risks differ significantly, even if their functions are comparable. Moreover, the potential risk mitigation provided by traditional financial systems should also be considered within a risk-based framework. For example, by implementing proper safeguards, replacing physical cash with tokenized cash can improve the capacity for KYC and tackle AML challenges. Minimizing dependence on balance sheet-intensive intermediary activities can also help decrease systemic risk concentrations.

A risk-based regulatory approach adjusts oversight according to the level of risk associated with an activity, offering the advantage of clarity since regulations are aligned with the degree of risk and promote efficient use of resources. Regulators must also build a comprehensive understanding of the VASP market, its structure, and its function within the financial system and the national economy, in order to more effectively evaluate risks within this sector. This could involve investing in training, staff, or other resources that help regulators acquire the necessary practical skills and knowledge to oversee the various VA providers and activities outlined in VA service offerings or business models. Regulators should consistently reassess the risk profiles of both the VASP sector and individual VASPs, particularly when there are significant changes in a VASP's situation or when new relevant threats arise. Examples of current supervisory practices in different countries regarding VASPs or the broader VASP sector, as well as country-specific examples related to money laundering and terrorist financing (ML/TF) risks connected to specific VA products, services, or business models. Countries like South Africa, the UK, Singapore, Finland, and Hong Kong have implemented risk-based regulation when overseeing virtual assets (crypto assets).

In South Africa, cryptocurrency assets are categorized as "financial products" according to the Financial Advisory and Intermediary Service Act. Entities offering services and acting as intermediaries need to obtain approval from the Financial Sector Conduct Authority under this legislation.

The UK's Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulation 2017, which came into effect for crypto-asset companies in January 2020, outlines a risk-focused method for conducting customer verification, ongoing surveillance, and reporting unusual transactions.

Singapore, during its discussions, has suggested regulatory actions aimed at minimizing the potential for consumer damage arising from cryptocurrency trading. For example, these measures involve restrictions on consumer access, where services are provided to individual investors. In other words, when clients have less expertise, there are stricter compliance obligations for the service providers.

Hong Kong's framework for virtual-asset activities, which has been in effect since 2018, includes various investor protection measures, such as the implementation of a virtual-asset knowledge test. Hong Kong is currently seeking input on introducing further protections if retail investors are to be granted access to virtual assets.

1. Adaptable and versatile financial oversight

Adaptable and responsive regulation within the virtual asset or cryptocurrency sector entails developing regulatory systems that can keep pace with fast-moving technological changes and the dynamic characteristics of the industry. This strategy typically involves regulatory sandboxes, outcome-focused rules, and a readiness to update frameworks as the market develops. Agile regulation requires continuous observation of the market and periodic evaluation of regulations to maintain their relevance and effectiveness. Successful agile regulation depends on cooperation among various regulatory agencies to ensure a unified and thorough approach. Instead of prescribing particular technologies, agile regulation emphasizes desired results (such as security and investor protection) and permits flexibility in achieving those goals. Agile practices, originally applied in software development, are now being implemented in financial regulation to simplify procedures, boost adaptability, and strengthen teamwork.

The objective is to encourage innovation while reducing risks and maintaining the integrity of the market. The regulatory system must be adaptable to changing markets and products. Future laws will establish a clear framework in Ghana, clarifying the range of activities covered by the regime, with specific rules determined by the regulators. Agile-based financial regulation employs agile methods to adjust to shifting financial environments and regulations, fostering flexibility and ongoing enhancement in regulatory procedures. This method focuses on incremental development, feedback mechanisms, and teamwork, allowing financial institutions to react more efficiently to regulatory changes and market conditions.

Rather than imposing and enforcing strict rules, agile regulation takes a flexible and continuous approach, recognizing that the creation of policies and regulations is no longer solely the responsibility of governments but involves multiple stakeholders. Regulatory sandboxes, guidelines, and regulators' letters of non-objection are all examples of agile regulation that allow for the testing of new solutions, with policy frameworks being refined in response to changes in the ecosystem and industry requirements. Agile-based financial regulation is a flexible, iterative, and forward-looking method that values market maturity and the development of the ecosystem. The government believes that this agile approach will help regulators adjust to market changes and advancements in international standards. Furthermore, in line with the goal of promoting financial stability in Ghana, the proposed framework must evolve if crypto-asset markets present or could potentially pose risks to financial stability. Agile-based financial regulation presents a promising way to enhance the efficiency, adaptability, and effectiveness of regulatory processes within the financial services sector. By adopting agile principles, financial institutions can more effectively respond to changes, manage risks, and ensure compliance in an ever-changing and increasingly complex regulatory landscape.

The three main difficulties in agile-oriented financial regulation include ambiguity, synchronization, and teamwork. To sum up, adaptive and versatile regulation is essential for the ethical growth of the digital asset environment. It fosters creativity while maintaining that the risks connected with this quickly changing technology are properly controlled.

Several countries such as Switzerland, UAE, European Union, and India have implemented an Agile-based financial regulation model. The Swiss Financial Market Supervisory Authority (FINMA) introduced a token classification system that includes three basic categories: payment tokens, utility tokens, and asset tokens. The framework also recognizes hybrid tokens and notes that a token's classification can evolve over time. After the initial classification, FINMA released additional guidance in 2019 regarding stable tokens, which are categorized as either asset tokens or a hybrid of asset and payment tokens. Regulatory sandboxes in the EU, India, and UAE serve as examples of an agile regulatory approach.

1. Self- and co-financial regulation

This form of self-regulation and co-regulation occurs under the 'shadow of the state,' implying that all parties involved operate under the risk of state intervention if no agreement is reached or if public interests are significantly at stake. When the state and private regulators work together in shared institutions, this process is referred to as 'co-regulation.' In self-regulation, industry representatives come together to create voluntary standards or codes of conduct. As it is driven by the industry itself, self-regulation helps maintain an understanding of ecological needs and can foster trust among industry players, consumers, and regulators. However, it may result in less stringent rules and might not be effectively enforced due to the absence of direct regulatory support. This issue is partially addressed through co-regulation, where a non-profit organization is established by members of a specific industry or sector to aid in regulating companies within that field, under the supervision of the regulator.

Self-regulation and co-regulation rely on collaboration among various stakeholders from both the public and private sectors, which fosters trust within the system and supports innovation. Japan and Switzerland have implemented this type of regulatory framework.

In October 2018, Japan's Financial Services Agency (FSA) granted the nation's cryptocurrency sector a self-regulatory framework, enabling the Japan Virtual Currency Exchange Association (JVCEA) to monitor and impose penalties on domestic cryptocurrency exchanges, under the supervision of the FSA.

In Switzerland, the Financial Market Supervisory Authority (FINMA) grants permission to self-regulatory organizations (SROs) to ensure that their members adhere to anti-money laundering laws, all while being monitored by FINMA.

1. Rules- based financial regulation

A regulatory model known as rules-based financial regulation is defined by detailed and specific instructions that clearly state what financial institutions are allowed or prohibited from doing. This method is very directive, offering minimal space for interpretation or flexibility. The objective of this approach is to ensure clarity and uniformity, enabling companies to easily grasp their responsibilities and allowing regulators to effectively monitor adherence. Rule-based applies when regulations are enforced on authorized entities or groups involved in regulated operations, such as accepting deposits, facilitating payments, providing loans, and underwriting securities. The rules-based system offers explicit guidance, thus minimizing confusion and the possibility of biased interpretations by both regulators and the entities they oversee. In certain countries, rules-based systems have been especially crucial in situations where regulatory certainty was necessary, such as in anti-money laundering (AML) or consumer protection areas, where clear and enforceable standards ensured strong protections and consistent industry practices. Rules-based regulation depends on strictly defined rules that specify the actions and behaviors expected from financial institutions. By offering clear guidelines, this approach seeks to achieve predictable and consistent results across various institutions.

The particular characteristics of these rules make it simpler for regulators to oversee adherence and implement regulations. A rules-based approach offers a more comprehensive and directive structure. Although this type of regulation can be efficient in maintaining uniformity and avoiding regulatory loopholes, it has also faced criticism for being rigid and possibly limiting innovation. Rules-based regulatory frameworks often result in a mindset focused on checklists, where companies concentrate more on meeting specific criteria rather than achieving full compliance. Nations that adopt rules-based financial regulation usually have thorough, precise rules defining the obligations for financial institutions, frequently including numerical limits and explicit instructions. Examples are the United States, Canada, and some areas in Europe.

1. Financial Regulation by enforcement

Regulation through enforcement means that regulatory frameworks are being shaped by the use of enforcement measures. Due to the similarities between the applications of crypto-assets and current regulatory systems concerning securities, commodities, and anti-money laundering, various regulatory agencies have initiated enforcement actions against crypto-asset companies and individuals, claiming that even though these crypto-assets utilize new technology, they breach existing laws, making the companies or individuals responsible. Enforcement actions are essential for tackling issues such as fraud and market manipulation, particularly when crypto-assets clearly resemble securities and are involved in activities explicitly banned, like money laundering. The approach taken by U.S. regulators is based on regulation through enforcement. Applying existing securities regulations is done if the activity falls under the scope of regulated activities, determined individually for each case. Financial regulation via enforcement refers to the process where regulatory authorities ensure adherence to financial laws and rules by imposing penalties and taking action against financial institutions that breach these regulations, guidelines, and rules. This includes investigating possible violations, deciding on suitable punishments, and implementing steps to correct or prevent future misconduct. It plays a vital role in maintaining a stable and reliable financial system, safeguarding consumers and investors, and promoting fair market practices. The Financial Regulatory Authorities need to create rules and standards for virtual assets (crypto-assets).

1. In conclusion, The regulation of the crypto-asset market is at different levels of maturity in various regions, and diverse regulatory strategies can influence the extent of global cooperation. A principles-driven approach allows regions to recognize shared objectives while creating customized routes to reach these goals, such as fostering responsible innovation and safeguarding consumers. Risk-focused regulation centers on tackling common dangers—like money laundering, illegal financing, and potential risks to financial stability—and applying comparable techniques to manage these threats. International bodies like the FSB and FATF have been working together by studying the risks and suggesting unified actions. An adaptable strategy, although essential for the changing environment, often tends to be more localized, as policymakers and regulators address specific market situations to prevent regulatory loopholes. Self-regulation and co-regulation are crucial since they allow industry players to work together and create best practices, codes of conduct, and standards that can be implemented across different areas, thereby decreasing regulatory complexity. Lastly, enforcement-based regulation would require strong collaboration among law enforcement agencies to ensure consistent application of rules and regulations on a global scale.

5.0 Conclusion.

A comprehensive financial strategy is required in the regulation of digital assets in Ghana to fully leverage the benefits of the underlying technology while addressing risks associated with regulatory loopholes and the interconnections within the crypto-asset environment, as well as the potential for impact on conventional financial systems. Nevertheless, considering that the Ghanaian market is still in an early phase, the growth of the country's hub, and the differing capabilities of regulators, it is wise to take a broad approach that also emphasizes the crucial role that international bodies such as the IMF, FATF, and BCBS, along with national and regional regulators, as well as industry participants, can play in promoting responsible regulatory development.

Ghana's approach to regulating and overseeing crypto assets must conform to global frameworks and guidelines. When creating the regulatory system, special attention should be given to ensuring clear regulations that allow the local crypto-asset industry to grow openly and facilitate efficient oversight by the relevant authorities.

The appropriate authorities, such as the Bank of Ghana and the Securities Exchange Commission, need to have the required resources to efficiently oversee cryptocurrency-related activities and the possible emergence of risks, including those affecting the payment system and monetary transmission mechanisms. Ghanaian authorities should start an inter-agency process to establish the government's overall policy direction and develop suggestions concerning the content and regulatory framework of the anticipated cryptocurrency regulation.

The oversight of the cryptocurrency market is at different levels of maturity in various regions, and diverse regulatory methods can influence the promotion of international cooperation in different ways.

Using a principle-driven approach, Ghanaian financial regulators can recognize shared objectives while creating customized routes to reach these goals, such as promoting responsible innovation and safeguarding consumers. Risk-focused regulation entails tackling common risks—like money laundering, illegal financing, potential dangers to financial stability, and more—and applying comparable strategies to manage these risks.

International bodies like the FSB and FATF have been working together to address these issues by examining potential risks and suggesting unified actions. An adaptable strategy, although essential for the changing environment, often tends to be more localized, as policymakers and regulators adjust to particular market situations to prevent gaps in regulation. Self-regulation and co-regulation are significant because they allow industry members to work together and create best practices, codes of conduct, and standards that can be implemented across different regions, thereby reducing regulatory complexity. Lastly, regulation through enforcement would necessitate strong collaboration among law enforcement agencies to ensure consistent application of rules and regulations on a global scale.

However, this document will not suggest developing the Ghanaian financial regulatory system for virtual assets (crypto assets), as "regulation by enforcement" prevents any substantial conversation about what should and should not be regulated. Regulation through enforcement does not offer the crypto sector clear guidelines.

6.0 Recommendations

First, from the above discussions on the multi-faceted financial regulatory approaches, we recommend that Ghanaian financial regulators should adopt a financial regulatory approach that combines principles-based and risk-based financial regulations in regulating and supervising Ghana’s virtual assets ecosystem: a). By adopting principles-based financial regulation, Ghanaian financial regulators will provide flexibility, encourage innovation, and be more future-proof compared to strict rules-based systems. Focusing on desired outcomes rather than rigid rules allows firms to adapt to changing circumstances and develop customized compliance strategies, potentially leading to lower costs and increased competitiveness. This approach also fosters a deeper understanding of risk and promotes ethical behavior within the financial sector. It provides flexibility and adaptability, encourages innovation and efficiency, enhances risk management and accountability, offers potential for global consistency, and improves regulatory effectiveness. Although there are potential challenges, such as the need for clear and well-defined principles and the risk of inconsistent application, the benefits of principles-based financial regulation make it a valuable approach in dynamic and complex markets. b). In addition, by adopting risk-based financial regulation, Ghanaian financial regulators will gain several key advantages, primarily by improving efficiency, effectiveness, and flexibility in managing and mitigating risks within the financial sector. It enables a more targeted approach, directing resources towards areas with the highest potential for negative impact, resulting in better resource allocation, lower costs, and improved regulatory compliance. Risk-based financial regulation offers enhanced efficiency and resource allocation, improved effectiveness and outcomes,better risk management, greater agility and responsiveness, improved adherence to regulations and increased credibility and public image:

Second,Ghana has various design strategies and options available when creating a legal and regulatory system for crypto assets and associated activities. These alternatives consist of: (a) implementing extensive legal reforms, (b) creating specific legal amendments along with regulations, (c) issuing regulations without making any legislative changes, (d) applying exemptions, and (e) enforcing prohibitions or bans (IMF Country Report on Kenya Crypto Regulation and Legislation (2024)). There is currently no dedicated legislation addressing crypto assets in Ghana. The regulatory structure has been outlined through draft guidelines and regulations released by the Bank of Ghana (BoG) in August 2024, which have led to an inconsistent and uncoordinated approach, lacking legal clarity.

1. Ghana requires extensive legal changes. This could lead to a specialized framework with detailed definitions that encompass new features of cryptocurrency assets and specific rules to handle them. Broad legislation should also address areas such as licensing, oversight, regulation, penalties, and enforcement mechanisms. Extensive legal reform can offer clarity and to some degree, legal predictability. The responsibilities of relevant regulatory bodies, agencies, and other stakeholders can be clearly outlined. However, implementing extensive legal reform may be technically complex and time-intensive, requiring sufficient institutional capability. It might also be a less adaptable approach since modifying laws in the future could be a difficult process. Furthermore, even though a thorough system will ensure legal certainty within the cryptocurrency asset domain by providing comprehensive regulations for those types of crypto assets, it must ensure alignment with existing, traditional financial sector laws which may already cover certain kinds of assets. This could result in some confusion where a particular type of asset might fall under the purview of current financial regulations. Considering this, any comprehensive legislation must guarantee consistency with existing, traditional financial sector laws.
2. Legally modified provisions accompanied by rules. The possibility of implementing targeted changes followed by regulations might offer more flexibility in relation to a rapidly changing crypto asset environment. However, the authorities responsible for creating regulations must possess the necessary legal authority to do so. When the legislature explicitly outlines certain types of assets to be regulated and further defines the responsibilities of regulators and supervisors regarding these assets, the framework gains a level of legitimacy. It can also promote a uniform approach among various regulators and supervisors based on the legislative decisions that subsequently guide and shape the detailed strategies of regulatory and supervisory bodies concerning crypto assets. This method may be faster to implement compared to a complete, comprehensive legal structure, as the legislature would only define key terms, assign duties to supervisors, and establish general principles of the regulatory strategy, while entrusting the development of more specific details to expert groups. This ensures the framework remains adaptable over time without requiring parliamentary review of the legislation, while also offering a high level of legal clarity.
3. Enacting rules without any modifications to the law.This method could be the fastest to put into action and might also offer the benefit of increased adaptability within a changing cryptocurrency asset environment. The regulatory body may be empowered to create rules under their current legal framework. Thorough regulations could also encourage innovation by establishing clear guidelines for acceptable activities. Nevertheless, there needs to be explicit legal authority to develop such regulations concerning crypto assets and services.

Additionally, this method may fail to address the issue of conflicting responsibilities and is unable to resolve disputes over jurisdiction when specific cryptocurrency assets could fall under various existing regulations, such as payment laws versus securities laws.

(d) The application of exemptions.This includes making exceptions to specific parts of current laws, typically securities regulations, for certain cryptocurrency-related activities. As a result, the economic participant is relieved from responsibility and potential enforcement actions concerning the particular provision. This method might consider traditional securities laws or rules that may not be suitable for emerging business models or may not offer a complete or integrated framework for regulating crypto assets. The feasibility of using this method will rely on a legal assessment within the jurisdiction regarding the regulator's capacity to implement such exceptions. This approach might also lack clarity since exceptions are usually applied individually, are not binding for future enforcement, and do not establish clear guidelines for cryptocurrency activities.

(e) Prohibitions or outright bans. Ghana could choose to prohibit or eliminate the possession, utilization, buying and selling, and other associated activities involving cryptocurrency assets. While this clearly reflects a position on digital assets, it hampers innovation and encourages illegal activities facilitated by regulatory loopholes, pushing such actions into hidden areas. Banning these activities might also be challenging and expensive due to the global character of cryptocurrency ((IMF Country Report on Kenya Crypto Regulation and Legislation (2024)

Third, Ghanaian financial regulators need to implement best practices for essential functions (such as custody, transfer, settlement, tracking of illicit activities, etc.) and clearly define baseline regulatory standards for AML/KYC, consumer protection, and market integrity. Encourage an evidence-based, detailed understanding of implementing these best practices to ensure that technology solutions and regulatory standards can work together effectively. Ghanaian regulators should create guidelines, best practices, and frameworks to appropriately regulate the entry and exit points within the crypto-asset ecosystem. Regulators should adopt best practices by utilizing technology and analytics service providers to automate regulatory compliance/reporting, provide real-time risk alerts, and monitor regulatory changes.

Fourth,The Bank of Ghana and the Securities Exchange Commission should be equipped with the necessary authorities, resources, and tools to regulate, monitor, and manage crypto-asset activities and markets, including those involving crypto-asset issuers and service providers, as needed. Financial regulators must ensure that they implement effective regulation, supervision, and monitoring of crypto-asset activities and markets—covering crypto-asset issuers and service providers—proportionate to the risks these activities may pose to financial stability, in accordance with the principle "same activity, same risk, same regulation."

Fifth, Bank of Ghana and Securities Exchange Commission, as applicable, must ensure that crypto-asset service providers establish and reveal a thorough governance structure. This structure should be suitable to their level of risk, scale, complexity, and significance to the financial system, as well as the potential threat to financial stability arising from their operations or the market they are involved in. It should outline distinct and direct lines of responsibility and accountability for the functions and activities they carry out.

Sixth,Ghanaian financial supervisors, as needed, must ensure that cryptocurrency service providers implement a robust risk management system that thoroughly covers all significant risks linked to their operations. This system should be suitable for their level of risk, scale, complexity, and significance to the financial system, as well as the potential threat to financial stability from their activities or the market they operate in. Regulators should, where essential to attain regulatory results similar to those in conventional finance, mandate that cryptocurrency issuers manage the financial stability risks that could arise from their activities or the market they are involved in.

Seventh, the Bank of Ghana and the Securities Exchange Commission, as applicable, should mandate that cryptocurrency issuers and service providers establish strong systems for gathering, keeping, protecting, and promptly and accurately reporting data, including necessary policies, processes, and infrastructure, each tailored according to their level of risk, scale, complexity, and significance to the financial system.

Eighth, financial regulatory authorities must ensure that crypto-asset service providers engaged in various functions and activities, such as crypto-asset trading platforms, are regulated, monitored, and supervised in a manner that thoroughly addresses the risks linked to each individual function as well as the risks that emerge from the integration of these functions, including provisions for separating specific functions and operations where necessary

Ninth,The Bank of Ghana and the Securities Exchange Commission, as regulators, need to acquire a thorough understanding of the VASP market, its framework, and its significance within the financial system and the nation's economy, in order to enhance their evaluation of risks within this sector. This could involve allocating resources towards training, hiring staff, or other means that help supervisors develop the necessary practical skills, including upgrading and retraining, to effectively regulate and oversee the various VA providers and activities outlined in the VA services or business models.

Tenth, Financial authorities need to create effective risk evaluations and supervisory systems. Authorities should consistently perform detailed risk assessments, especially concerning financial integrity and stability, and set up well-defined supervisory structures for VASPs to tackle new risks within the VAs industry. The natural fluctuation in VAs necessitates regulatory protections to safeguard consumers and ensure market stability. This involves providing clear instructions for VASPs on handling liquidity and operational risks.

Eleventh, due to the cross-border nature of numerous crypto-asset activities, legal and regulatory frameworks that support cross-border supervision and enforcement actions appear necessary. These frameworks should once more be guided by the specific risks outlined in the stock-taking exercise. However, since many services offered in Ghana are delivered online by foreign service providers, cooperation agreements with other jurisdictions and their regulatory authorities are crucial for overseeing cross-border operations. For virtual asset service providers that have a significant presence in the Ghanaian market, requiring them to obtain local licenses along with a requirement to establish a legal entity in Ghana to ensure enforceability could be explored.

In conclusion, the final suggestion is for Ghanaian financial authorities to establish a thorough framework that safeguards all categories of investors involved in virtual currencies, tokens, and investments. We observe that most regulatory environments currently concentrate on protecting holders of security tokens and recommend this scope be broadened. We advocate for specific regulations that are supportive of the potential of virtual assets to foster innovation and make finance more accessible.

References.

Bank of Ghana (2024) Proposed Guidelines for Digital Assets (Exposure Draft August 2024)

Bentsi-Enchill, Letsa, and Ankomah (2025) state that the Bank of Ghana will begin overseeing cryptocurrency in September 2025.

FATF (2023). Virtual Assets: Specific update regarding the application of FATF guidelines for Virtual Assets and Virtual Asset Service Providers.

FATF, Special Update (2022) regarding the Execution of FATF Guidelines on Digital Assets and Digital Asset Service Providers, June 30, 2022: Paris

FATF (2019), Framework for a Risk-Oriented Strategy concerning Virtual Assets and Virtual Asset Service Providers, FATF, Paris,

Financial Stability Council. (2022). Rules, Monitoring, and Control of Digital Asset Operations and Markets

International Organization of Financial Stability (2023) The Financial Stability Risks of Decentralized Finance, 16 February 2023:https://www.fsb.org/wp-content/uploads/P160223.pdf.

International Monetary Fund (2024) Technical Assistance Report regarding Kenya's Cryptocurrency Regulation and Laws December 2024.

International Monetary Fund October (2021) Virtual Assets and Combating Money Laundering and Terrorist Financing (1)—Some Legal and Practical Aspects. Fiscal Affairs Department IMF (2021).

World Economic Forum, White Paper (2023) Routes to the Regulation of Digital Assets: A Worldwide Regulatory Framework. 2023 World Economic Forum

Dr. Richmond Atuahene is a specialist in Banking and Corporate Governance Advisory.

Provided by SyndiGate Media Inc. (Syndigate.info).