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WEF Insights On Coordinating Global Crypto Regulation
Crypto Regulation | May 27, 2024
Image; Pathways to Regulation of Crypto Assets - A Global Approach (WEF)
World Economic Forum (WEF) Publishes Recommendations for Global Coordination in Regulating Crypto Assets
Regulating crypto assets that are continuously evolving at light speed is complex and coordination among international jurisdictions, national regulators, and industry participants is key. In this light, WEF 2023 report (34 page PDF) offers a comprehensive set of recommendations and insights for a harmonized approach to regulating crypto assets.
See: Canada’s Proposed Mutual Fund Crypto Regulations 2024
This article reviews the recommendations drawn from the report and compares them with the current approach for different regions.
1. Recommendations to International Bodies
International bodies have a role in setting the stage for a unified global approach on crypto regulation.
a. Promote a harmonized understanding of the taxonomy and classification
- Describe different features and risks across crypto-assets and associated activities. Promote technology-neutral principles in supporting cross-jurisdictional convergence.
- Example: World Custom Organization's Harmonized System provides a model of standardized classification to ensure consistency across international trade.
b. Set out best practices and baseline regulatory standards
- Definition of best practices for key functions: custody, transfer, and settlement. Definition of baseline standards, such as AML/KYC, Consumer Protection, Market Integrity.
- Example from other sector: IOSCO harnesses the collective power of the capital markets' regulators to create global standards for securities regulation, ensuring adherence and compliance with baseline requirements.
c. Encourage data portability of entities and data sharing
- Develop standards around data sharing and interoperability, to support passportability of data. Interoperability will ensure a global coordination and resolution of entities' risks.
See: Open Banking: Revolutionizing Financial Data Sharing
- Example from other sector: Supervisory Colleges establish cooperative and effective mechanisms in conducting consolidated supervision over a financial group that is active on a worldwide basis.
2. Recommendations for National and Regional Regulators
National and regional regulators should build a safe and sound environment for crypto assets. Key points are cross-segment coordination, regulatory certainty, and using technology to design regulation.
a. Coordination Across Sectors
- Increase collaboration between financial supervisors and law enforcement. Multi-regulator sandboxes for controlled testing in practice.
- Example: India's IoRS allows for financial product cross-regulatory testing in practice.
b. Regulatory Certainty
- Develop guidelines and frameworks for the regulation of crypto-asset ecosystems. Focus on centralized intermediations and existing financial institutions in the beginning.
See: SEC Enforcement Director Grewal On Crypto Regulation
- Examples: The internet protocols like HTTP and SMTP are unregulated but all the applications built on them, for example, e-commerce or fintech, are regulated under different frames.
c. Using Technology for Regulation by Design (RegTech)
- Adapt technologies for automated compliance and real-time risk alerts and tracking of change in the regulation. Support public-private partnerships on innovation and risk monitoring.
- Examples: India, through consent-by-design data protection, ensures neutrality and compliance with consent obligations.
3. Recommendations for the Crypto Industry
Some proactive steps that the industry will have to take in order to achieve global coordination and regulatory alignment are discussed in the WEF report. It also calls for standard setting, sharing best practices, and responsible innovation in technology.
a. Standard Setting
- Coordination on technical standards around aspects like governance, consumer protection, cybersecurity, and interoperability.
- Example: The payment card industry data security standard.
b. Sharing of Best Practices
- Develop best practices with regard to managing operational, market, and counterparty risks. Periodically review material risks to financial infrastructure and service providers.
See: CSA Updates on Value-Referenced Crypto Assets Regulation
- Example: The global FX code, developed together with central banks and market participants, is a set of principles for good practices in the FX market.
c. Responsible Technology Innovation
- Engage with policymakers to innovate responsibly, considering maturity of industry and impacts to environment, society and economy.
- Example: Banking industry in Hong Kong jointly produced the Treat Customers Fairly Charter with the Hong Kong Monetary Authority to promote strong consumer protection principles.
Overview of Crypto Regulations in Leading Countries in 2024
As of 2024, several countries are progressing their regulatory landscape for cryptocurrencies. These nations are setting benchmarks by implementing comprehensive regulatory frameworks that align closely with the World Economic Forum’s (WEF) recommendations for a global approach to crypto regulation. Here’s an overview at some of these countries (in no particular order).
European Union (EU)
Markets in Crypto Assets (MiCA) Regulation
- MiCA is the EU’s landmark regulatory framework, set to take effect in 2024. It aims to provide legal certainty and protect consumers while fostering innovation within the crypto sector.
- MiCA includes stringent requirements for crypto asset service providers (CASPs), such as authorization procedures, operational requirements, and transparency obligations. It also addresses the regulation of stablecoins, setting high standards for issuers to ensure financial stability and consumer protection.
See: Challenges in Global Crypto Regulations – Lessons from Dubai
- MiCA’s comprehensive approach, including cross-border regulatory standards and consumer protection measures, closely aligns with WEF’s call for harmonized global standards and robust regulatory frameworks.
United Kingdom
Phased Regulatory Approach
- The UK is implementing a new regulatory regime following extensive consultations in early 2024. The Financial Conduct Authority (FCA) oversees crypto activities, ensuring compliance with AML and CFT regulations.
- The UK’s framework includes registration requirements for crypto firms, stringent consumer protection measures, and specific regulations for stablecoins and crypto-derivatives.
- The UK’s phased approach and focus on creating a secure, transparent environment for crypto activities reflect the WEF’s recommendations for regulatory certainty and consumer protection.
United States
Regulatory Developments
- The US regulatory landscape remains complex due to the involvement of multiple agencies, including the SEC, CFTC, and FinCEN. Recent legislative efforts include the Fit21 Bill that was approved with bipartisan support and still needs to receive passage from the Senate and presidential blessing.
- The US approach involves significant enforcement actions and a focus on integrating stablecoins into the financial system. However, regulatory uncertainty persists due to jurisdictional overlaps and legislative challenges.
See: U.S. House passes FIT21 with Bipartisan Support
- While the US is making strides in certain areas, the fragmented approach and ongoing regulatory ambiguity highlight the need for more cohesive standards, as advocated by the WEF.
Canada
Comprehensive Regulatory Framework
- Canada has established a robust regulatory framework for crypto assets, with stringent requirements for trading platforms to register with the Canadian Securities Administrators (CSA).
- The framework emphasizes consumer protection, requiring platforms to segregate customer assets and comply with AML and KYC regulations. The introduction of Bitcoin and Ether ETFs and discussions on a central bank digital currency (CBDC) further indicate Canada’s proactive stance.
- Canada’s comprehensive and transparent regulatory environment aligns well with the WEF’s recommendations for regulatory certainty, consumer protection, and the use of technology for regulation by design.
United Arab Emirates (UAE)
Innovative Regulatory Environment
- Dubai, through the Virtual Assets Regulatory Authority (VARA), and Abu Dhabi have established themselves as leading crypto hubs with robust regulatory frameworks.
See: The Complexities of Auditing Digital Assets
- The UAE’s regulations cover a wide range of crypto activities, providing clarity and security for businesses and consumers. These regulations include stringent AML/CFT measures and a clear framework for licensing and supervision.
- The UAE’s proactive and detailed regulatory approach supports WEF’s vision of harmonized standards and effective cross-border cooperation.
Hong Kong
Retail Crypto Trading Services
- Hong Kong has implemented regulations that promote responsible innovation while ensuring high standards for retail crypto trading services. Hong Kong also recently approved both spot bitcoin and ethereum ETFs.
- The regulatory framework includes comprehensive requirements for licensing, consumer protection, and AML/CFT compliance.
- Hong Kong’s regulations align with WEF’s recommendations by providing regulatory certainty and fostering a secure environment for crypto activities.
Singapore
Retail Crypto Trading Services
- Singapore has developed an enabling framework in which retail crypto trading services should be offered in and which will promote innovation at the same time as protecting market integrity.
- Strong licensing requirements, significant consumer protection measures, and comprehensive compliance with AML/CFT.
See: SEC Approves 19b-4 Forms of First Batch Ethereum ETFs
- The regulations in Singapore are highly aligned with the WEF recommendations to underpin the importance of regulatory certainty for a safe and transparent crypto environment, shown through the clarity of the guidelines and active integration of the best international practices.
Which Country Best Aligns with the WEF's Recommendations?
Here is the table summarizing the alignment of various countries' crypto regulations with the World Economic Forum's recommendations. The alignment score is based on the extent to which each country's regulations incorporate elements of the WEF's recommendations, such as consumer protection, regulatory certainty, and the use of technology for regulation.
| Country/Region | Alignment with WEF Recommendations | Score | |
|---|---|---|---|
| European Union | Comprehensive regulatory framework, consumer protection, cross-border coordination, and use of technology for compliance. | 9/10 | |
| United Kingdom | Phased regulatory approach, strong consumer protection, and supportive of technological innovation. | 8/10 | |
| United States | Fragmented approach with ongoing regulatory uncertainty, significant enforcement actions, and legislative efforts. | 6/10 | |
| Canada | Robust framework, stringent consumer protection, and proactive stance on innovation and regulation. | 8/10 | |
| United Arab Emirates (UAE) | Detailed regulatory framework, cross-border coordination, and clear guidelines for licensing and operation. | 9/10 | |
| Hong Kong | Comprehensive regulations, focus on responsible innovation, and high standards for retail crypto trading services. | 9/10 | |
| Singapore | Strong regulatory framework, stringent consumer protection measures, and support for fintech innovation through regulatory sandbox. | 9/10 |
Conclusion
As the landscape of crypto asset regulation continues to evolve around the globe, it is crucial that international bodies, national regulators, and the industry itself work together to create a harmonized and robust framework by promoting consistent standards, sharing best practices, and fostering responsible innovation.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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