Why IMF Calls for Regulating Crypto?
The International Monetary Fund pitched for a globally coordinated, consistent, and comprehensive approach to crypto regulation through its recent publication.
The IMF noted that the divided approach to crypto regulations among countries (ban outright or accept with open arms) is resulting in a fragmented global response.
Although the IMF sees a global consensus on crypto regulation is forming, albeit slowly, the agency is concerned that “the longer this takes, the more national authorities will get locked into differing regulatory frameworks.”
Cryptocurrencies have come a long way since Bitcoin, the world’s first cryptocurrency, was introduced in 2009. Having touched a whopping $3 trillion in 2021 from a market cap of a couple of billion dollars in 2013, when there were just seven cryptocurrencies in existence, tells a story.
Although phenomenal, this incredible growth hasn’t been without its share of problems. For instance, with rising demand for crypto-related products, the failed projects, hacks, high volatility, rug pull, and pump and dump schemes have increased, too.
Besides, such massive traction has attracted the attention of many traditional financial institutions, which has led to fears of the increasing intertwining of the crypto market and the traditional financial ecosystem. The experts believe that any drastic fall in the crypto market can spill over to the broader financial industry.
Thus, crypto regulations must ensure consumer protection and keep a check on the industry without stifling innovation.
Easier said than done. Without global consensus, crypto regulations will just be an equivalent of a toothless tiger!
The International Monetary Fund, too, pitched for an internationally coordinated, consistent, and comprehensive approach to crypto regulations in its latest publication, noting that “the right rules could provide a safe space for innovation.”
The IMF also pointed out that “applying existing regulatory frameworks to crypto assets, or developing new ones, is challenging for several reasons.”
So, what makes Crypto Regulation Complex?
There are several reasons: the rapidly evolving crypto market, lack of resources among regulators, patchy data, and an ever-growing number of cryptocurrencies. Thus, global coordination is a must.
Interestingly, we are also seeing coordination between various actors within the crypto market to make crypto compliance as smooth as possible. Recently, FIS Global joined hands with Shyft Network to enable companies to participate in the crypto landscape while complying with the complex and ever-changing world of crypto regulations.
No Unison Approach
Although the call for crypto regulations has gained momentum pretty recently, not all regulators and authorities have been sitting ducks. The United States, the United Kingdom, Switzerland, and the European Union had introduced or amended legislation to reign in the crypto industry even before the crypto assets attracted mainstream attention. Besides, international agencies, such as the Financial Action Task Force (FATF) and the International Organization of Securities Commissions (IOSCO), too, have published guidelines for the crypto industry.
How effective all the previous guidelines and regulations have been is a matter of discussion, given that a critical piece was missing: global coordination. For instance, the FATF Travel Rule has been adopted by only a handful of countries, which has compelled the FATF to urge governments to expedite Travel Rule adoption.
The recent IMF publication also highlighted two vastly different approaches among countries when it comes to crypto regulation. On the one hand, some countries, like China, came down heavily against crypto assets by banning them outright. On the other hand, some countries welcome crypto companies with open arms, such as El Salvador. This results in a fragmented global response that defeats the purpose of regulating digital assets.
It is not to say that a global consensus is out of the question, as countries are discussing ways to regulate crypto assets in international forums, such as G20, as proposed by a G20 watchdog. So, it’s just a matter of time now.
But the IMF is concerned that “the longer this takes, the more national authorities will get locked into differing regulatory frameworks.” Thus, the IMF is calling for a coordinated, consistent, and comprehensive global response.
VASPs need a Travel Rule Solution to begin complying with the FATF Travel Rule. So, have you zeroed on it yet? We have the best solution to suggest: Veriscope! Veriscope is the only frictionless Crypto Travel Rule compliance solution.