• The World Economic Forum has released a white paper on crypto asset regulation, assisted by its Digital Currency Governance Consortium.
• The need for regulation is urgent and cooperation is key, the paper found.
• Regulatory approaches discussed include outcome-based, risk-based, and agile regulation as well as regulatory sandboxes, guidance and regulators’ no-objection letters.
Crypto Asset Regulation
The World Economic Forum has released a white paper on crypto asset regulation with the purpose of encouraging cooperation between international organizations, regulators, and the crypto industry. The authors identified various challenges to creating an effective framework that can be adopted globally.
For effective regulation to be achieved, global coordination is necessary in order to prevent ambiguity, regulatory arbitration or inconsistent enforcement. This coordination needs to account for features such as anonymity provided by mixers, self-hosted wallets and decentralized exchanges which complicate monitoring and oversight. Additionally, increasing interconnectedness with traditional finance increases potential contagion risks from the crypto industry which could have negative impacts on market stability.
The paper created a variety of classifications of regulatory frameworks for comparison’s sake including: outcome-based (same risk same regulatory outcome); risk-based (level of intervention depending on activity level); agile (responsive iterative approach), regulatory sandboxes; guidance; and regulators’ no-objection letters). Switzerland was held up as an example of an agile regulator whereas Japan was cited as an example of self-regulation or co-regulation. Meanwhile the United States was seen as home to ‘regulation by enforcement’ which is not recommended due to lack of meaningful discussion about what should/should not be regulated before implementation takes place.
Cooperation & Ambiguity Avoidance
The need for cooperation between international organizations/regulators/the crypto industry was highlighted since ambiguous regulations will lead to arbitrations amongst countries leading to inefficient outcomes for all stakeholders involved in the process. In order for successful regulation there needs to be clarity surrounding each country’s laws/regulations regarding activities related to cryptocurrencies in order to avoid potential legal issues down the line when dealing with transnational transactions involving different jurisdictions subjecting different regulations on similar activities within different geographies.
To conclude this article it appears that global coordination is essential when it comes to effectively regulating cryptocurrencies across multiple countries due both their anonymity features that make them difficult monitor/regulate and their increasing connection with traditional financial markets that could lead to contagion risks if not properly regulated. Different types of regulations were discussed including outcome based , risk based , agile ,sandbox etc..although ensuring cooperation between all relevant parties will remain critical in avoiding ambiguous regulations which could cause legal disputes down the road when dealing with transnational transactions where different jurisdictions apply different standards towards similar activities .