WEF's White Paper Urges Global Cooperation for Effective Crypto Asset Regulation and Transparent Governance
In collaboration with its Digital Currency Governance Consortium, the World Economic Forum (WEF) has recently released a white paper focusing on crypto asset regulation. The paper underscores the pressing requirement for regulatory measures within the crypto industry and emphasizes the significance of cooperation among international organizations, regulators, and industry stakeholders.
According to the paper, global coordination is crucial to prevent regulatory ambiguity, arbitration, and inconsistent enforcement in the realm of crypto asset regulation. The authors point out various challenges in regulating crypto assets, such as the difficulty of fitting them into existing regulatory frameworks that are typically activity-based and focused on intermediaries. They state, "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."
The anonymity provided by crypto mixers, self-hosted wallets, and decentralized exchanges further complicates the regulatory landscape. Additionally, as the crypto industry becomes increasingly interconnected with traditional finance, the risks of contagion from the industry also increase. The authors note that the recent "turmoil" in the traditional finance sector further highlights the need for effective regulation in the crypto industry.
To facilitate a better understanding of regulatory frameworks, the paper presents different classifications for comparison. These include outcome-based regulation, which advocates for the same regulatory outcome for the same level of risk, and risk-based regulation, where the level of regulatory intervention is determined by the risk associated with a specific activity.
The paper also emphasizes the importance of agile regulation, which acknowledges that policy and regulatory development are no longer limited to governments alone but require a multistakeholder effort. Examples of agile regulatory approaches include regulatory sandboxes, guidance, and regulators' no-objection letters. Switzerland's Financial Market Supervisory Authority is cited as an example of an agile regulator, while Switzerland and Japan are mentioned as countries that practice self- and co-regulation.
In contrast, the United States is identified as a jurisdiction where regulation by enforcement is prevalent. The authors caution against this approach, stating that it hinders meaningful discussions on what should and should not be regulated.
The white paper concludes with three broad recommendations aimed at international organizations, regulatory authorities, and the crypto industry. It underscores the importance of collaboration, best practice sharing, and coordination across jurisdictions to achieve consistency and clarity in crypto asset regulation. The authors believe that leveraging the transparency inherent in these new technologies can lead to even better regulatory tools for addressing cross-border concerns.
In summary, the WEF's white paper on crypto asset regulation highlights the need for urgent regulation and cooperation in the crypto industry. It identifies challenges in regulating crypto assets and proposes different approaches to regulatory frameworks. The paper emphasizes the significance of agile regulation and provides recommendations for international organizations, regulators, and industry stakeholders to ensure consistency and clarity in crypto asset regulation.