Explore alternative regulation for crypto: World Economic Forum

For countries deciding on regulation over crypto, the World Economic Forum (WEF) suggests in a new report that they should explore alternative regulatory pathways to collaborate and regulate the crypto-asset ecosystem.

The report, Pathways to Crypto-Asset Regulation: A Global Approach highlighted that while full global coordination for crypto regulation would be ideal, varying ecosystem maturity in different jurisdictions, evolving use cases, capacity of regulators and other factors make it difficult to achieve.

The authors noted that these alternative pathways should be done through a principle-based, agile approach that takes local context into consideration.

Along with the existing efforts on global coordination, these additional regulatory solutions can be leveraged to attain the desired outcome.

Matthew Blake, head, centre for financial and monetary systems at the WED said the evolving crypto-asset ecosystem and recent market events have underscored the pressing need for collaboration and the building of robust guardrails.

He said, “While jurisdictions may take different approaches to regulating crypto-assets, it is important to foster partnerships between international organisations, national authorities, and industry stakeholders, to ensure a baseline level of consumer protection and market integrity."

Over the past few years, various international standard-setting bodies and organisations have made considerable efforts to produce evidence-based research as well as high-level frameworks. As countries have started regulating the ecosystem, some common trends have begun to emerge.

These trends can already help to provide a baseline that the global crypto-asset ecosystem can build on to move towards coordinated, harmonised regulation on a global scale.

Oleksiy Feshchenko, advisor, Global Program against Cybercrime, UN Office on Drugs and Crime (UNODC) said, “The coordinated efforts of all jurisdictions to regulate cryptocurrencies are extremely important.

“Even if you have the best tools and officers to trace cryptocurrency, all your efforts will be in vain once you bump into some non-regulated exchange that simply doesn't provide information to law enforcement.”

Global coordination is ideal but is difficult to achieve. However, regulatory pathways already exist that international organisations, regional bodies and industry players can implement.

The WEF recommends that international organisations should promote harmonised understanding of taxonomy and classification of crypto assets and related activities, setting out baseline regulatory standards, as well as encourage passportability and data-sharing that enable interoperability.

These measures can foster convergence in different jurisdictions, provide clarity for business, protect users and discourage illicit activities.

Regional and national authorities play a key role in providing certainty for innovators and empowering consumers.

As such, the report suggested they should focus on coordinating among domestic departments to address cross-sector risks, develop guidelines and best practice frameworks to proportionately regulate the ecosystem. They should also leverage technology and analytics services for automated regulatory compliance/reporting, real-time risk alerts and tracking regulatory change.

These bodies can also implement learnings from regulations in other sectors for best practices. Data-sharing regulations in the crypto industry could leverage learnings from, for example, supervisory colleges that oversee information sharing in the broader financial sector.

Industry leaders should continue work on interoperable technical standards and focus on establishing and disseminating best practices. Additionally, they should engage with policy-makers and regulators in an effort to innovate responsibly and align on educational efforts.

Crypto industry players have a vital role to ensure that the ecosystem evolves in a responsible manner and can learn from more mature industries to fulfil this role.

For example, the crypto ecosystem can look years of experience in evolving data security standards for credit cards or global principles of good practice in the foreign exchange market (Global FX Code) to ensure consumer interests are protected.