In order to promote collaboration between international organizations, regulators, and the cryptocurrency industry, the World Economic Forum examined several regulation options.
The World Economic Forum’s Digital Currency Governance Consortium helped the organization publish a white paper on regulating crypto assets. According to the study, cooperation is essential and regulation is urgently needed.
The study suggested that in order to avoid ambiguity, regulatory arbitration, and inconsistent enforcement, global coordination is required for crypto asset regulation.
The authors identified a range of challenges to crypto asset regulation, including the presumption of “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.”
Anonymity Challenges and Regulatory Implications
The potential of crypto mixers, self-hosted wallets, and decentralized exchanges to offer anonymity increases the regulatory difficulties they present. Regulators find it challenging to adequately monitor and enforce compliance in the cryptocurrency industry as a result of this anonymity. Furthermore, as evidenced by recent instances of volatility and instability in the crypto market, the growing integration of cryptocurrencies with traditional finance raises the potential risks of contagion.
The report provides a number of classifications in order to assess and contrast various regulatory approaches. Risk-based regulation, which adjusts the level of regulatory involvement based on the level of risk associated with particular activities, and outcome-based regulation, which concentrates on achieving the same regulatory outcomes for comparable risks, are two noteworthy frameworks.
Comparing Regulatory Approaches
In order to produce regulations in an effective and timely manner, the idea of agile regulation is also emphasized. This method acknowledges that many stakeholders now play a role in policy and regulatory decision-making, in addition to just government organizations. The utilization of regulatory sandboxes, releasing guidelines, and sending no-objection letters are a few examples of agile regulatory processes.
Both Japan, which has embraced self- and co-regulation as part of its regulatory system, and Switzerland’s Financial Market Supervisory Authority are given as examples of nimble regulators.
These nations serve as role models for regulating the cryptocurrency market capably while encouraging innovation and cooperation between regulators and market participants.
The United States alone was seen as the home of regulation by enforcement. The authors wrote:
“This approach is not recommended to build out a framework, as ‘regulation by enforcement’ precludes any meaningful discussion of what should and should not be regulated.”