Definition ∞ Principle-Based Compliance is a regulatory approach where rules are expressed as overarching principles or objectives rather than detailed, prescriptive instructions. In the digital asset space, this means regulators set broad standards for ethical conduct, risk management, and consumer protection, allowing crypto firms flexibility in how they achieve these outcomes. This method aims to foster innovation by not dictating specific technologies or business models. It contrasts with rule-based compliance, which specifies exact actions and procedures.
Context ∞ The state of principle-based compliance in crypto is a subject of ongoing debate, as jurisdictions consider how best to regulate a rapidly evolving industry. A key discussion involves balancing the flexibility it offers with the need for sufficient clarity and enforceability to prevent illicit activities and protect market participants. Future developments may see a hybrid approach emerge, combining broad principles with targeted, prescriptive rules for specific high-risk areas within the digital asset sector.
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