The World Economic Forum has released a paper detailing a global approach to crypto regulation. The forum acknowledges that as the crypto-asset ecosystem evolves, coordinating regulatory frameworks across jurisdictions proves a “complex and formidable task.”
In view of the unique features of the underlying technology and the opportunities therein, the World Economic Forum stated that the need for global coordination is obvious.
World Economic Forum emphasized challenges to a global crypto-asset regulation highlighting the lack of standardized definitions, taxonomies, classifications, and understanding: The WEF stated that the crypto-asset ecosystem lacks a consensus on definitions, taxonomies, or even classifications. It also added that other challenges include regulatory arbitrage and fragmented monitoring, supervision, and enforcement.
Various regulatory approaches have been adopted or are being considered by regulators and policymakers, WEF said. According to the forum, the different regulations include:
- Principle-based regulation/Outcome-based regulation: makes it possible for jurisdictions to identify common goals while devising tailored pathways to achieve these outcomes, such as ensuring responsible innovation and consumer protection.
- Risk-based regulation: involves addressing common risks such as money laundering, illicit financing, potential threats to financial stability, etc., and using similar methods in managing the risks.
- Agile regulation: is more region-specific, as policy-makers and regulators respond to specific market conditions to avoid regulatory gaps.
- Self- and co-regulation: enable industry participants to collaborate and develop best practices, codes of conduct, and standards that can then be adopted across jurisdictions and reduce regulatory complexity.
- Regulation by enforcement: require close coordination among law-enforcement agencies to enforce rules and regulations consistently at the global level.
According to the World Economic Forum analysis, outcome-based regulation and agile regulation would work best in promoting innovation, while risk-based regulation would be more effective for providing certainty for businesses and ensuring enforcement effectiveness. Regulation by enforcement will also work towards enforcement effectiveness, but in conjunction with self and co-regulation, it will have the least impact on providing certainty for businesses. Another area the regulation approaches would reach when adopted is addressing data gaps.
Finally, the World Economic Forum recommends that International organizations must cooperate and collaborate with industry stakeholders to address technological, legal, regulatory, and supervisory challenges. regional/national regulatory bodies should develop their respective regional/national strategies by building on existing best practices. “The objective should be to provide certainty for innovators and to empower users,” WEF said.
The industry has a vital role to play to ensure global coordination in regulating crypto-assets there they should engage with regulators, advocate for clear, consistent regulations across jurisdictions, and collaboratively evolve robust voluntary frameworks which include best practices, rating systems, technical standards, etc.