The World Economic Forum, in collaboration with its Digital Currency Governance Consortium, has published a comprehensive white paper on the regulation of crypto assets. The paper highlights the urgent need for regulatory measures and stresses the importance of cooperation among international organizations, regulators, and the crypto industry.
According to the paper, global coordination is essential to avoid regulatory ambiguity, inconsistent enforcement, and regulatory arbitrage in the realm of crypto asset regulation. The authors identify several challenges associated with regulating crypto assets, including the fact that they do not neatly align with traditional regulatory approaches focused on intermediaries and activity-based regulation. They note that the anonymity offered by crypto mixers, self-hosted wallets, and decentralized exchanges further complicates regulation. Additionally, the increasing interconnectedness between crypto and traditional finance poses potential contagion risks, given the recent volatility and upheaval within the crypto industry.
The white paper explores various regulatory frameworks for comparison purposes, including outcome-based and risk-based approaches. It also advocates for agile regulation, which acknowledges that policy and regulatory development are no longer limited to governments alone but require a collaborative effort involving multiple stakeholders. Examples of agile regulatory practices include regulatory sandboxes, guidance documents, and no-objection letters from regulators. The paper cites Switzerland’s Financial Market Supervisory Authority as an exemplar of agile regulation and highlights Switzerland and Japan as countries that have successfully implemented self- and co-regulatory approaches.
On the other hand, the paper cautions against a regulatory approach based solely on enforcement, which limits meaningful discussions on the scope and boundaries of regulation. The authors discourage the use of “regulation by enforcement” as a primary strategy for building a regulatory framework.
The white paper concludes with three overarching recommendations: one for international organizations, one for regulatory authorities, and one for the crypto industry. It emphasizes the importance of sharing best practices and fostering coordination among jurisdictions. The authors assert that policymakers and industry stakeholders must collaborate to ensure consistency, clarity, and effective regulation. They also believe that given the inherent transparency of new technologies, there is room for the development of improved regulatory tools to address cross-border concerns.
