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The World Economic Forum has released a white paper on the regulation of crypto assets with the assistance of its Digital Currency Governance Consortium. The need for regulation is urgent and cooperation is key, the document says.
The paper argues that global coordination is needed to regulate crypto assets to prevent ambiguity, regulatory arbitrage, and inconsistent enforcement. The authors identified a number of issues in the regulation of crypto assets, including the presumption of “same activity, same regulation”, arguing:
“Crypto assets and their ecosystem do not always fully fit into the existing activity-based and intermediation approach to regulation, even in cases where the activity of crypto assets reflects that of the traditional financial sector.”
The anonymity afforded by cryptocurrency mixers, offline wallets, and decentralized exchanges also complicates regulation. Meanwhile, the growing interconnection with traditional finance increases the potential risks of contagion from the cryptocurrency industry, which has been full of “turmoil” just recently.
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In the article, for comparison, many classifications of the regulatory framework have been created. Results-based regulation, which is characterized as “same risk, same result of regulation”, and risk-based regulation, where the level of regulatory intervention is determined by the level of risk of the activity, were considered.
Agile regulation “takes a flexible, iterative approach, recognizing that policy and regulatory development is no longer limited to governments, but is increasingly a multi-stakeholder effort.” Regulatory sandboxes, guidelines, and regulatory no-objection letters were cited as examples of a flexible approach to regulation.
The Swiss Financial Market Supervisory Authority was cited as an example of a flexible regulator. Switzerland and Japan were cited as examples of self-regulation and co-regulation.
Only the United States was considered the birthplace of forced regulation. The authors wrote:
“This approach is not recommended for building a framework, as ‘regulation by enforcement’ precludes any meaningful discussion of what should and should not be regulated.”
The document contains three general recommendations for international organizations, regulators and the cryptocurrency industry. Particular attention was paid to the exchange of best practices and coordination. “Politicians and industry stakeholders must collaborate across jurisdictions to ensure consistency and clarity,” the authors write. “Because these new technologies start from a position of transparency, even better regulatory tools can be imagined to address cross-border issues.”
