New Report Identifies Top Barriers and Potential Solutions in Global Crypto-Asset Regulation

Published

25 May 2023

2023

Madeleine Hillyer, Media Relations and Public Affairs, public.affairs@weforum.org

· New report analyses crypto regulations from nearly 20 countries and identifies the industry’s top trends and challenges

· Fragmented regulation enforcement, uneven monitoring, differing classification of crypto assets are hampering a globally coordinated approach to crypto regulation

· Report provides agile, principle-based, regulatory options for international, national and industry stakeholders to implement while they continue existing efforts for a globally coordinated crypto-asset regulation

· Read the full report here

New York, USA, 25 May 2023 – From fragmented monitoring and enforcement to differing classifications of crypto assets, many barriers hinder global coordination on crypto-asset regulation efforts. A new study from the World Economic Forum identifies the importance of a global approach to crypto-asset regulations and provides potential solutions to these barriers.

The report, Pathways to Crypto-Asset Regulation: A Global Approach, emphasizes 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.

As such, regulators and industry players should explore alternative regulatory pathways to collaborate and regulate the crypto-asset ecosystem 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.

“The evolving crypto-asset ecosystem and recent market events have underscored the pressing need for collaboration and the building of robust guardrails,” said Matthew Blake, Head, Centre for Financial and Monetary Systems, World Economic Forum. “While jurisdictions may take a different approaches to regulating crypto-assets, it is important to foster partnerships between international organizations, national authorities, and industry stakeholders, to ensure a baseline level of consumer protection and market integrity."

Global crypto regulation trends

Over the past few years, various international standard-setting bodies and organizations 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.

Numerous countries and regions have implemented the following regulations:

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

Regulation recommendations

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

International organizations

International organizations should promote harmonized 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

Regional and national authorities play a key role in providing certainty for innovators and empowering consumers. As such, the report suggests 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

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.

Ultimately, international organizations, regional and national regulators and industry leaders will need to collaborate to ensure consistency and clarity. While acknowledging the challenges in achieving coordination, the new report recommends multiple prioritized pathways that various stakeholders can employ to achieve the desired outcome.

To regulate this dynamic sector effectively requires the utilization of diverse regulatory tools, including legislative frameworks, voluntary codes of conduct and educational initiatives. Furthermore, given the inherent transparency of these new technologies, it becomes conceivable to envision even more effective regulatory tools to address cross-border concerns.

Expert Thoughts

"As a global company, Circle has prioritized regulatory engagement and policy harmonization, which the critical work carried out by the World Economic Forum and the Digital Currency Governance Consortium continues to advance. We welcome this work and encourage nations, companies, investors and people to promote a race to the top when it comes to responsible financial services innovations powered by digital currencies and constantly upgradable financial infrastructure," said Jeremy Allaire, Co-Founder, Chairman and CEO, Circle

“The crypto-asset movement was created out of the 2008 financial crisis with the belief that the financial system should be better. They have the potential to do just that — revolutionize the global economy. The World Economic Forum's report on the regulation of crypto-assets is a significant step towards fostering a balanced and informed approach to governing this transformative industry,” said Michael Gronager, Cofounder and CEO, Chainalysis.

“2022 has been a transformative year for virtual assets, and to enable a sustainable future, regulatory clarity and certainty are foundational anchors. Equally, given the increasingly borderless reality of the new economy, it is our collective responsibility to harmonize rules that allow for consistent interpretation, and uniform enforcement - ultimately driving towards a trusted, progressive, and safe global market for virtual assets,” said Deepa Raja Carbon, Managing Director and Vice Chair, Virtual Assets Regulatory Authority, UAE

“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," said Oleksiy Feshchenko, Advisor, Global Program against Cybercrime, UN Office on Drugs and Crime (UNODC).

All opinions expressed are those of the author. The World Economic Forum Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and industry agendas.