White paper on crypto regulation emphasizes need for regulation

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The World Economic Forum (WEF), along with its Digital Currency Governance Consortium, has published a paper on regulating crypto assets. The paper, titled “Pathways to Crypto-Asset Regulation: A Global Approach,” stresses the need for urgent regulation and the importance of global collaboration to prevent inconsistent enforcement, regulatory arbitration, and ambiguity. The authors noted that regulating crypto assets presents a range of challenges, including the issue of “same activity, same regulation,” as these assets do not always fit into the existing regulatory framework.

“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 report adds that the anonymity of crypto mixers, self-hosted wallets, and decentralized exchanges makes regulation even more complicated. Besides, the report further notes that the growing interdependence of the crypto industry with traditional finance poses potential contagion risks. The paper suggests several classifications of regulatory frameworks, including outcome-based and risk-based regulations, to facilitate comparison.

The authors urge policymakers and industry stakeholders to work together across jurisdictions to create even better regulatory tools to address cross-border concerns, given the transparency of these new technologies.

WEF Paper Criticizes US Approach to Crypto Enforcement

The paper calls for lawmakers to avoid regulation by enforcement, claiming that it prevents the establishment of a functioning regulatory regime. The WEF also noted that the US was the only country to resort to regulation by enforcement, adding:

“This approach is not recommended to build out a framework, as ‘regulation by enforcement’ precludes any meaningful discussion of what should and should not be regulated.”

Regulatory agencies in the US, particularly the Securities and Exchange Commission (SEC), have launched an aggressive crackdown on the crypto industry following the catastrophic collapse of cryptocurrency exchange FTX last year. The SEC has taken action against Bittrex, Gemini, Genesis, and a number of individual actors accused of manipulating crypto assets, including crypto entrepreneur Justin Sun and disgraced Terraform Labs founder Do Kwon.

The paper gave three broad recommendations to international organizations, regulatory authorities, and the crypto industry, emphasizing best practices of sharing and coordination.

“As these new technologies start from a position of transparency, it is possible to imagine even better regulatory tools to address cross-border concerns.”