WEF publishes crypto asset regulation recommendations for regulators and the industry
The World Economic Forum (WEF) has analyzed regulatory approaches to urge cooperation between international organizations, regulators, and the crypto industry.
By Anna B Kiwanuka
The World Economic Forum (WEF), assisted by its Digital Currency Governance Consortium, has recently published an extensive white paper addressing the crucial topic of crypto asset regulation. Recognizing the pressing need for regulatory measures in this rapidly evolving sector, the paper emphasizes the significance of cooperation among various stakeholders including international organizations, and regulators among others.
Global coordination is necessary for crypto asset regulation to prevent ambiguity, regulatory arbitration, and inconsistent enforcement, according to the paper.
The authors identified a range of challenges to crypto asset regulation, including the presumption of the same activity, same regulation, claiming:
“Crypto-assets and their ecosystem do not always fit squarely into the existing activity-based, intermediary-focused approach of regulation, even where crypto-asset activities mirror those of the traditional financial sector.”
The authors also claimed that the anonymity provided by crypto mixers, self-hosted wallets and decentralized exchanges also complicates regulation. Meanwhile, increasing interconnectedness with traditional finance also increases potential contagion risks from the crypto industry, which was only recently full of turmoil.
The paper created a variety of classifications of regulatory frameworks for comparison’s sake. Outcome-based, which is characterized as same risk, same regulatory outcome, and risk-based regulation, where the level of regulatory intervention is determined by the activity’s level of risk, were considered.
Furthermore, the white paper states that agile regulation adopts a responsive, iterative approach, acknowledging that policy and regulatory development is no longer limited to governments but is increasingly a multistakeholder effort.
Regulatory sandboxes, guidance, and regulators’ no-objection letters were cited as examples of an agile regulatory approach. Switzerland’s Financial Market Supervisory Authority was held up as an example of an agile regulator. Switzerland and Japan were cited as examples of self- and co-regulation.
The paper made three broad recommendations each to international organizations, regulatory authorities, and the crypto industry. It emphasized best practice sharing and coordination.
The authors wrote, “Policy-makers and industry stakeholders need to collaborate across jurisdictions to ensure consistency and clarity. As these new technologies start from a position of transparency, it is possible to imagine even better regulatory tools to address cross-border concerns.”
The WEF white paper on crypto asset regulation offers valuable insights and recommendations for crypto assets regulation. By actively engaging industry stakeholders in global coordination, and adopting agile regulatory approaches, hopefully, African countries too can navigate the complexities of crypto asset regulation, and contribute to the development of their growing crypto landscape.