Definition ∞ Functional Regulation is a regulatory approach that supervises financial activities based on their nature or function, rather than on the type of entity performing them. This method applies consistent rules to similar activities, regardless of the institutional form of the provider. It aims to prevent regulatory arbitrage and ensure equitable oversight across different market participants.
Context ∞ The application of Functional Regulation to digital assets is a central discussion among global policymakers. This approach seeks to address the diverse activities within the crypto market, such as lending, trading, and asset issuance, under appropriate regulatory frameworks. A critical future development involves international coordination to standardize functional classifications and avoid fragmented oversight.
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