From fragmented monitoring and enforcement to differing classifications of crypto assets, many barriers hinder global coordination on crypto-asset regulation efforts. A new study from the World Economic Forum identifies the importance of a global approach to crypto-asset regulations and provides potential solutions to these barriers. Overall, analyses crypto regulations from nearly 20 countries and identifies the industry’s top trends and challenges.
The report, Pathways to Crypto-Asset Regulation: A Global Approach, emphasizes that while full global coordination for crypto regulation would be ideal, varying ecosystem maturity in different jurisdictions, evolving use cases, capacity of regulators and other factors make it difficult to achieve.
As such, regulators and industry players should explore alternative regulatory pathways to collaborate and regulate the crypto-asset ecosystem through a principle-based, agile approach that takes local context into consideration. Along with the existing efforts on global coordination, these additional regulatory solutions can be leveraged to attain the desired outcome.
“The evolving crypto-asset ecosystem and recent market events have underscored the pressing need for collaboration and the building of robust guardrails,” said Matthew Blake, Head, Centre for Financial and Monetary Systems, World Economic Forum. “While jurisdictions may take a different approaches to regulating crypto-assets, it is important to foster partnerships between international organizations, national authorities, and industry stakeholders, to ensure a baseline level of consumer protection and market integrity.”
Global crypto regulation trends
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Over the past few years, various international standard-setting bodies and organizations have made considerable efforts to produce evidence-based research as well as high-level frameworks. As countries have started regulating the ecosystem, some common trends have begun to emerge.
These trends can already help to provide a baseline that the global crypto-asset ecosystem can build on to move towards coordinated, harmonized regulation on a global scale.
Regulation recommendations
Global coordination is ideal but is difficult to achieve. However, regulatory pathways already exist that international organizations, regional bodies and industry players can implement.
International organizations
International organizations should promote harmonized understanding of taxonomy and classification of crypto assets and related activities, setting out baseline regulatory standards, as well as encourage passportability and data-sharing that enable interoperability.
These measures can foster convergence in different jurisdictions, provide clarity for business, protect users and discourage illicit activities.
Regional and national authorities
Regional and national authorities play a key role in providing certainty for innovators and empowering consumers. As such, the report suggests they should focus on coordinating among domestic departments to address cross-sector risks, develop guidelines and best practice frameworks to proportionately regulate the ecosystem. They should also leverage technology and analytics services for automated regulatory compliance/reporting, real-time risk alerts and tracking regulatory change.
These bodies can also implement learnings from regulations in other sectors for best practices. Data-sharing regulations in the crypto industry could leverage learnings from, for example, supervisory colleges that oversee information sharing in the broader financial sector.
Industry leaders
Industry leaders should continue work on interoperable technical standards and focus on establishing and disseminating best practices. Additionally, they should engage with policymakers and regulators in an effort to innovate responsibly and align on educational efforts.
Crypto industry players have a vital role to ensure that the ecosystem evolves in a responsible manner and can learn from more mature industries to fulfil this role. For example, the crypto ecosystem can look years of experience in evolving data security standards for credit cards or global principles of good practice in the foreign exchange market (Global FX Code) to ensure consumer interests are protected.
Ultimately, international organizations, regional and national regulators and industry leaders will need to collaborate to ensure consistency and clarity. While acknowledging the challenges in achieving coordination, the new report recommends multiple prioritized pathways that various stakeholders can employ to achieve the desired outcome.
To regulate this dynamic sector effectively requires the utilization of diverse regulatory tools, including legislative frameworks, voluntary codes of conduct and educational initiatives. Furthermore, given the inherent transparency of these new technologies, it becomes conceivable to envision even more effective regulatory tools to address cross-border concerns.
Expert Thoughts
“The crypto-asset movement was created out of the 2008 financial crisis with the belief that the financial system should be better. They have the potential to do just that — revolutionize the global economy. The World Economic Forum’s report on the regulation of crypto assets is a significant step towards fostering a balanced and informed approach to governing this transformative industry,” said Michael Gronager, Cofounder and CEO, Chainalysis.
“2022 has been a transformative year for virtual assets, and to enable a sustainable future, regulatory clarity and certainty are foundational anchors. Equally, given the increasingly borderless reality of the new economy, it is our collective responsibility to harmonize rules that allow for consistent interpretation, and uniform enforcement – ultimately driving towards a trusted, progressive, and safe global market for virtual assets,” said Deepa Raja Carbon, Managing Director and Vice Chair, Virtual Assets Regulatory Authority, UAE
Source:
World Economic Forum. (2023 May 25). New Report Identifies Top Barriers and Potential Solutions in Global Crypto-Asset Regulation. [Press release]
