In a bid to foster collaboration between global organizations, regulators, and the cryptocurrency industry, the World Economic Forum (WEF) has conducted extensive research to explore various approaches to regulating crypto assets.
The WEF's Digital Currency Governance Consortium has played a pivotal role in publishing a white paper on the regulation of crypto assets. The report highlights the urgent need for regulation and underscores the importance of collaboration.
Regulation prevents ambiguity, WEF
According to the findings, regulating cryptographic assets necessitates global cooperation to prevent ambiguity, regulatory discrepancies, and uneven enforcement. The authors acknowledge the challenges associated with regulating crypto assets, noting that the existing activity-based and intermediary-focused regulatory framework may not always be suitable for the unique characteristics of the crypto ecosystem, even when the underlying activities resemble traditional financial practices.
Factors such as cryptocurrency mixers, self-hosted wallets, and decentralized exchanges contribute to a layer of anonymity that complicates regulation. Additionally, as cryptocurrencies become increasingly interconnected with traditional banking systems, the potential risks of contagion in the crypto industry have garnered attention, especially considering recent market volatility.
To facilitate meaningful comparisons, the report presents different regulatory approaches categorized as result-based regulation and risk-based regulation. While both approaches consider the regulatory outcome in relation to the associated risks, outcome-based regulation is more commonly employed.
WEF: Regulation should be agile
The report also advocates for agile regulation, which embraces a responsive and iterative approach to policymaking. It acknowledges that regulatory development is no longer solely the domain of governments but increasingly involves multiple stakeholders. Regulatory sandboxes, guidelines, and no-objection letters from regulators are cited as examples of agile regulatory strategies.
The Financial Market Supervisory Authority of Switzerland is highlighted as a notable example of a flexible regulator. Switzerland and Japan are also recognized for their self-regulation and co-regulation efforts.
In contrast, the report advises against relying solely on enforcement-based regulation, particularly the approach known as "regulation by enforcement." The authors caution that such an approach limits meaningful discussions on the scope and nature of regulation, hindering the development of a comprehensive regulatory framework.
The research study concludes by offering three key recommendations to international organizations, regulatory bodies, and the cryptocurrency industry. It emphasizes the importance of sharing best practices and coordinating efforts across jurisdictions to ensure consistency and clarity in regulatory frameworks. Furthermore, the study highlights the need for collaboration between policymakers and industry stakeholders to explore innovative regulatory instruments that effectively address international trade-related challenges within the rapidly evolving landscape of crypto assets.