• The World Economic Forum has released a white paper on crypto asset regulation, detailing the need for international cooperation and regulatory approaches.
• Challenges to crypto asset regulation include anonymity provided by crypto mixers, self-hosted wallets and decentralized exchanges.
• Regulatory frameworks discussed include outcome-based, risk-based regulation and agile regulation, with Switzerland and Japan held up as examples of self- and co-regulation.
Crypto Asset Regulation Recommendations Released
The World Economic Forum has released a white paper on Crypto Asset Regulation, which calls for global coordination between international organizations, regulators and the crypto industry. The paper aims to avoid ambiguity in regulations as well as inconsistent enforcement by outlining a range of regulatory challenges associated with the industry.
Challenges to Crypto Asset Regualtion
The authors identified several challenges to effective regulations of the crypto industry including the presumption of “same activity, same regulation” even when activities mirror those in traditional finance. Additionally, anonymity provided by services such as mixers, self-hosted wallets or decentralized exchanges can make it difficult to regulate activity within this space. As more traditional financial systems become interconnected with cryptocurrency assets there is an increasing risk of contagion from volatile markets that were previously full of “turmoil”.
Regulatory Frameworks Discussed
The paper outlines three different possible regulatory frameworks: outcome based (“same risk, same regulatory outcome”), risk based (regulatory intervention determined by activity level) or agile (responsive & iterative approach that acknowledges multistakeholder effort). Examples are given such as sandboxes, guidance documents or regulator no-objection letters all under an agile regulatory framework while Switzerland & Japan lead examples of self/co-regulation. Lastly ‘regulation by enforcement’ was discouraged due to its lack of meaningful discussion about what should be regulated within the industry.
Importance of Cooperation
Overall the authors stress that cooperation between all parties involved is key in order for successful implementation of regulations in the crypto space citing that each country should keep its own laws but find common ground globally on similar issues like money laundering & terrorist financing prevention efforts.
The paper ultimately reveals that global coordination is necessary in order for successful development & implementation of effective regulations within this space so it can be stabilized without letting go off any potential benefits from innovation that come from technologies such as blockchain & cryptocurrencies