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The World Economic Forum, assisted by its Digital Currency Governance Consortium, has released a paper on the regulation of crypto assets, acknowledging the urgent need for regulation and cooperation.
The paper explains the need for global coordination for the regulation of crypto assets to avoid ambiguity, regulatory arbitrage, and inconsistent enforcement.
A host of challenges to the regulation of crypto assets were acknowledged by the authors of the article, and these challenges included the “same business, same regulation” presumption. He asserted that “crypto-assets and their ecosystem do not always fit neatly into the existing activity-based and intermediary-focused approach to regulation, even when crypto-asset activities mirror those of the traditional financial sector. .”
Crypto regulation is further complicated by the anonymity of crypto mixers, self-hosted wallets, and decentralized exchanges. This, combined with the growing interconnectedness of the crypto industry with traditional finance, is accelerating potential contagion risks. As things stand, the traditional financial industry has only recently been full of “turmoil”.
The document classified regulatory frameworks into several categories for ease of comparison. Those considered were ‘outcome-based regulation’, characterized by ‘same risk, same regulatory outcome’, and risk-based regulation, in which the level of risk of the activity determines the level of regulatory intervention.
Agile regulation “takes a reactive and iterative approach, recognizing that the development of policies and regulations is no longer limited to governments, but is increasingly a multi-stakeholder effort”.
Examples of such agile regulation were regulatory sandboxes, guidelines, and letters of no objection from regulators. An example of an agile regulator given was the Financial Market Supervisory Authority of Switzerland, while examples of self-regulation and co-regulation cited were Switzerland and Japan.
Only the United States was considered the birthplace of regulation by enforcement. The paper’s authors wrote, “This approach is not recommended for developing a framework, as ‘regulation by enforcement’ precludes any meaningful discussion of what should and should not be regulated.”
The document made three broad recommendations to international organizations, regulators, and the crypto industry, with a focus on sharing and coordination best practices.
“Policy makers and industry stakeholders should collaborate across jurisdictions to ensure consistency and clarity,” the authors wrote. “As these new technologies start from a position of transparency, it is possible to imagine even better regulatory tools to address cross-border concerns.”
The writer is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash
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