• The multilateral credit body believes that a “comprehensive, coherent and coordinated” regulatory framework will help prevent crime and supervise transactions.
• The IMF is responsible for maintaining stability in international financial and monetary systems, despite the dramatic changes that cryptocurrencies have wrought.
• Experts said that while the FATF’s updated guidance for regulating cryptocurrency is helpful, it is insufficient.

Tobias Adrian (Dong He) and Aditya Nara, directors of International Monetary Fund presented to the Financial Stability Board a proposal for the development of a worldwide framework of regulation and regulations regarding cryptocurrencies.

According to the officials’ proposal, “the objective should be to provide a comprehensive and coordinated approach to managing risks to financial stability.” It seeks to exercise greater control over the operations of the cryptocurrency market worldwide.

They consider that the Financial Stability Board, fulfilling its coordination function, must “develop a global framework that includes standards for the regulation of crypto assets.”

The three officials contend that the cross-sectoral and cross-border nature of cryptocurrencies “limits the effectiveness of national approaches” to their regulation. They claim that the adoption of diverse strategies to regulate crypto in different countries could hinder comprehensive coverage.

They point out, too, that companies offering encryption services are international and that it is difficult for regulators to oversee their application. Consequently, such uncoordinated regulatory measures only facilitate “potentially destabilizing capital flows.”

The updated guidance of the Financial Action Task Force (FATF), which was created to regulate bitcoin, was mentioned by IMF officials. It is based on digital asset risk and the service providers.

But they clarified that although these and other institutional initiatives are “useful” to attack the problem, “they are not sufficiently coordinated towards a global framework to manage risks against financial and market integrity, financial stability and protection. of the consumer and investor”.

Towards global regulation

A regulatory framework that is ideal for loan officers should include at least three elements. The first is that companies who trade cryptocurrency (exchanges, wallets) need to have an operating licence similar to banks.

The criteria for granting such licenses to provide storage, exchange, transfer and payment services, among others, “must be clearly articulated.” At the same time, “the responsible authorities must be clearly designated” and have well-defined coordination mechanisms.

Second, these requirements must be tailored “to the main crypto asset and stablecoin use cases.” The experts point out that “investment services and products must have requirements similar to those of brokers and securities agents, supervised by the securities regulator.”

They indicate that regulatory authorities -“from central banks to securities and banking regulators – need to coordinate to address the various risks arising from different and changing uses.”

The third element proposed by Tobias Adrian, Dong He and Aditya Narain, is that said “authorities should provide clear requirements to regulated financial institutions regarding their exposure and commitment to cryptocurrencies.”

They suggest that regulators of the banking sector, securities, insurance and pension funds, “should stipulate capital and liquidity requirements and exposure limits to different types of these assets, and require risk and suitability assessments of investors”.

They propose that regulated businesses provide custody services. This will require clarification of the requirements.

They explain that “some emerging markets and developing economies” are facing “more immediate and acute risks of currency substitution through crypto assets, the so-called cryptoization”. Therefore, “capital flow management measures will have to be adjusted vis-à-vis cryptocurrencies.”

They add in the text of the proposal, that “this is because the application of established regulatory tools to manage capital flows can be more challenging when value is transmitted through new instruments, new channels and new service providers that they are not regulated entities”.

To The Flipside

• IMF experts emphasize that the organization’s mission is to safeguard the stability of the international monetary and financial system, in the face of the challenges and profound changes that crypto assets are generating.

In their brief, the three senior officials express that there is currently “an urgent need for cross-border collaboration and cooperation to address technological, legal, regulatory and supervisory challenges.”

Finally, they mention that “the Fund will work closely with the Financial Stability Board and other members of the international regulatory community to develop an effective regulatory approach for crypto assets.”

Why you should care

• It isn’t the first time senior representatives of multilateral organisations have suggested regulatory measures for Bitcoins and other Cryptos. However, what is important about this proposal is the fact that it clearly outlines the IMF’s role in the regulation of digital money.
• Cryptocurrencies are a reality that the international monetary system will have to learn to live with, as the Fund’s chief economist, Gita Gopinath, has recognized.
• The body believes it is crucial to establish international regulations to control cryptocurrency because of its rapid adoption and growth over the past two years.

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