Prescriptive Regulation refers to legal and governmental mandates that dictate specific actions, methods, or technologies that regulated entities must adopt to comply with statutory requirements. In the nascent crypto sector, such regulation would explicitly define how digital assets must be stored, transactions processed, or specific KYC/AML procedures implemented, rather than focusing on desired outcomes. Its purpose is to enforce strict operational uniformity and reduce perceived systemic risks by limiting discretionary action.
Mechanism
The mechanism of Prescriptive Regulation operates through detailed legislative texts and administrative rules that enumerate precise technical standards, operational protocols, or organizational structures. Compliance is monitored through audits, reporting requirements, and supervisory examinations, often leading to penalties for non-adherence. For crypto, this could mean mandating specific blockchain architectures for stablecoins or requiring specific wallet security standards for custodians.
Methodology
The methodology for developing and applying Prescriptive Regulation typically involves legislative bodies or regulatory agencies conducting impact assessments to determine the necessity and scope of detailed rules. For the crypto industry, this approach often faces challenges due to the rapid pace of technological innovation, which can quickly render specific mandates obsolete or impede the development of more efficient solutions. Industry participants must adapt their systems architecture to strictly conform to these explicit governmental dictates, limiting flexibility.
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