Forbes India 15th Anniversary Special

WEF paper on crypto asset regulations urges global cooperation

The World Economic Forum has published a paper analysing the regulatory approaches to the crypto industry, and also given recommendations to the governments and industry

Shashank Bhardwaj
Published: May 26, 2023 05:35:26 PM IST

WEF paper on crypto asset regulations urges global cooperationImage: Shutterstock

The World Economic Forum, assisted by its Digital Currency Governance Consortium, released a paper on crypto asset regulation, recognising the urgent need for regulation and cooperation.

The paper explained the necessity of global coordination for crypto asset regulation so as to avoid ambiguity, regulatory arbitration and inconsistent enforcement.

A host of challenges to crypto asset regulation were recognised by the authors of the paper, and these challenges included the presumption of “same activity, same regulation”. It claimed, “Crypto-assets and their ecosystem do not always fit squarely into the existing activity-based, intermediary-focused approach of regulation, even where crypto-asset activities mirror those of the traditional financial sector.”

The crypto regulation is further complicated by the anonymity of crypto mixers, self-hosted wallets and decentralised exchanges. This combined with the growing interconnectedness of the crypto industry with traditional finance accelerates potential contagion risks. As it is, the traditional finance industry was only recently full of “turmoil.”

The paper classified regulatory frameworks into several categories for facilitating comparison. Those considered were the “Outcome-based regulation”, that is characterised as “same risk, same regulatory outcome,” and the risk-based regulation, in which the activity’s level of risk determines the level of regulatory intervention.

Agile regulation “adopts a responsive, iterative approach, acknowledging that policy and regulatory development is no longer limited to governments but is increasingly a multistakeholder effort.”

Examples of such an agile regulation were regulatory sandboxes, guidance and regulators’ no-objection letters. An example of an agile regulator given was Switzerland’s Financial Market Supervisory Authority whereas examples of self- and co-regulation stated were Switzerland and Japan.

Only the United States was looked at as the home of regulation by enforcement. The authors of the paper wrote: “This approach is not recommended to build out a framework, as 'regulation by enforcement’ precludes any meaningful discussion of what should and should not be regulated.”

The paper gave three broad recommendations to the international organisations, regulatory authorities and the crypto industry, emphasising on best practices of sharing and coordination.

“Policy-makers and industry stakeholders need to 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 at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash