The rapid growth of crypto assets, associated products and services, and interconnections with the regulated financial system are intensifying the need for global crypto regulation that should be comprehensive, consistent, and coordinated by the world’s regulators, according to a recent document published by the International Monetary Fund (IMF).
According to the document published on the website of the Washington-based international financial institution:
“Policymakers struggle to monitor the risks of this evolving sector, in which many activities are not regulated. In fact, we believe that these risks to financial stability could soon become systemic in some countries. “
The analysis was written by Tobias Adrian, Financial Counselor and Director of the IMF Capital and Monetary Markets Department, Dong He, Deputy Director of the IMF’s Monetary and Capital Markets (MCM) Department, and Aditya Narain, Deputy Director of the Department by MCM. .
All three authors argued that uncoordinated regulatory measures could facilitate potentially destabilizing capital flows around the world.
They stated that,
“While almost [USD] The 2.5 trillion market capitalization indicates significant economic value from underlying technology innovations, such as blockchain, could also reflect foam in an environment of stretched valuations. In fact, the first reactions to the Omicron variant [of the COVID-19 virus] it included a significant crypto sell-off. ”
The authors justify the need for global regulation of cryptocurrencies with their observation that the “cross-sector and cross-border reach of cryptocurrencies limits the effectiveness of national approaches.”
Furthermore, they said that monitoring and enforcement are hampered by the fact that many encryption service providers operate across borders.
The proposed global regulatory framework should ensure a level playing field across the spectrum of activities and risks, the post said, and include the following three elements:
- Crypto asset service providers performing critical functions must be licensed or authorized to carry out their activities;
- Requirements should be tailored to the main cryptoassets and stablecoins use cases, which means that investment products and services need to have requirements similar to those of securities brokers and dealers, imposed by securities regulators;
- Authorities must define clear requirements on regulated financial institutions in relation to their exposure and commitment to cryptocurrencies.
The document concluded that there is “an urgent need for cross-border collaboration and cooperation to address technological, legal, regulatory and supervisory challenges,” adding that it is a daunting task to establish “a comprehensive, consistent and coordinated regulatory approach to cryptocurrencies.” .
“But by starting now, we can achieve the policy goal of maintaining financial stability while benefiting from the benefits of underlying technology innovations,” the authors stated.
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