The World Economic Forum (WEF), the Geneva-based international organization, has published a white paper, assisted by its’s Digital Currency Governance Consortium, on blockchain and crypto regulations to urge governments and the industry for global coordination to achieve the much-needed regulation for the sector.
The white paper, published on Thursday, May 25th, analyzes different regulatory approaches to urge cooperation between international organizations, regulators, and the crypto industry. According to the paper, given the unique nature of crypto assets and their underlying technology, “global coordination is not just desirable but necessary.”
In The Eyes of WEF, A Global Approach is the Ideal Pathway
The paper’s findings summarize that because of the borderless nature of the technology and interconnectivity between crypto assets and traditional finance, a global approach will be the ideal pathway to bring crypto into the mainstream.
However, the paper identifies a range of challenges to the global approach to crypto asset regulation, including ambiguity in the classification of cryptos in different jurisdictions, regulatory arbitration, and inconsistent enforcement.
The paper reads:
“The crypto-asset ecosystem lacks a consensus on definitions, taxonomies, or even classification, and these continue to evolve as the uses for the technology develop. For too long, national regulators have metaphorically spoken different languages when communicating about and defining crypto-assets. Comparing regulatory frameworks worldwide, there are divergent licensing and registration obligations, but also different definitions and classifications of key terms.”
Furthermore, the anonymity provided by crypto mixers, such as Torando Cash, self-hosted wallets, and decentralized exchanges, also complicates regulation.
Different governments and jurisdictions have adopted different approaches to regulate the sector. The WEF outlines five regulatory approaches adopted by different jurisdictions: principle-based approach, risk-based approach, agile approach, self-regulatory approach, and regulation by enforcement.
Per the text of the paper, the first four regulatory approaches can have varying effects in promoting global coordination. However, regulation by enforcement “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 recommends global coordination among international standard-setting bodies, regional and national regulators, and industry leaders to combine the best of these approaches. The paper concludes:
“Current regulatory efforts largely focus on concerns pertaining to illicit financing, conduct and market integrity, prudential requirements, and financial stability. However, as the understanding of the opportunities as well as the distinct risks strengthens, there is a need to evolve a principles-based, agile approach that advances best practices and guidelines with a co-innovation lens. Policy-makers and industry stakeholders need to collaborate across jurisdictions to ensure consistency and clarity.”
While the WEF white paper admits that the coordination will not be easy, it recommends setting standards used by other sectors, like the Harmonized System (HS) used by customs authorities and the International Organization of Securities Commissions (IOSCO) used for securities regulation, to achieve the coordination.
To dig further, the WEF’s blockchain and digital assets team will launch an initiative focused on evaluating the outcomes of different regional approaches to regulation.