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When will the world see a global crypto regulatory body?

Top official sheds light on the regulatory challenges of crypto.

Several countries are likely to come together by next year for devising a coordinated approach toward regulating crypto assets, according to IOSCO’s (International Organisation of Securities Commissions) Board Chair Ashley Alder, who is also the CEO of Hong Kong’s Securities and Futures Commission.

“I’d use the word exploratory more than anything else at an international level; It’s quite early. There are so many international efforts— the International Standards Board, the G-20 Group, etc. There isn’t anything like that for crypto at the moment but I would not expect that to be the case next year. It is bound to change,” Alder said during a conversation with Philip Middleton.

Middleton is the Chairman of OMFIF Digital Monetary Institute— a think tank for central banking, economic policy, and public investment. The conversation dealt with crypto assets and how regulators must approach them.

The regulation of platforms such as crypto exchanges is on the horizon in the medium term. Concepts like suitability disclosure, valuation, risk management, etc., will come to be incorporated into the crypto world, Adler said. He also did not buy the notion that crypto platforms will get to operate autonomously or independently of conventional regulation.

“The intersection between conventional financial services and crypto is where it is going to be headed,” Alder said, adding that the anti-money laundering aspect will be important as well from a regulatory point of view.

Alder’s comments indicate that a global regulatory body is on the cards for crypto given its cross-border characteristics. It also suggests that the crypto market will be regulated in a similar fashion as conventional financial instruments.

Key takeaways from the conversation

“It’s all about the three C’s— COVID-19; Climate; and Crypto.” — Ashley Alder

Crypto poses regulatory challenges: “There are two issues— lack of a regulatory nexus, particularly when it comes to decentralised finance, the operating technology stack, and the claim that smart contracts have replaced a centralised authority who could have responsibility,” Adler said. He highlighted that the second issue plaguing crypto was the cross-border nature where the activity is not anchored to a particular jurisdiction or is spread in more than one jurisdiction.

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Ignoring crypto not viable: “Ignoring crypto, if you don’t ban it, is not viable because it would be an abdication of public policy responsibility to look at something where there is promise, particularly around the underlying technology, but potential risks and harms including consumer harm,” Alder stressed.

Involvement of financial regulators: Alder said that there was a need for financial regulators to be involved because crypto claims to be a part of the financial system. “There’s a view at the moment that crypto is starting to resemble one of the three main attributes of money which is a store of value. The jury is still out on whether it’s a viable means of payment and the unit of account but there’s a growing realisation that there are aspects of crypto that could inform the future of finance quite profoundly,” Alder stated categorically.

Ideal approach to crypto regulation: “The basic approach is applying the familiar mantra of same business, same risk, same rules,” Alder prescribed in his response. Alder said that there are three things that need to be kept in mind— financial stability, investor protection, and FATF expectations on AML procedures. The Financial Action Task Force (FATF) has prescribed measures for countries to follow in order to rein in money laundering.

India bats for a unified approach to crypto regulation

“We will need to maintain a shared thinking to deal with the challenges posed by cryptocurrency […] It is important that all democratic nations work on this and ensure that it does not end up in the wrong hands, which can spoil our youth.” — PM Modi

Prime Minister Narendra Modi has not kept his desire for a synchronised approach toward crypto regulation hidden. Modi had called for all nations to cooperate on the issue of crypto assets. He was speaking at the 2022 World Economic Forum’s annual Davos conference that was held virtually this year.

Referring to cryptocurrency as a challenge on par with supply-chain disruptions, inflation, and climate change, Modi had said that the kind of technology associated with cryptocurrency renders decisions taken by a single nation inadequate.

He had also called for the international order to work towards ensuring that cryptocurrencies do not end up in the wrong hands at The Sydney Dialogue last year, The Hindu reported. It remains to be seen what shape and form the global crypto regulator takes, and which nations come together given the fraught nature of international relations in the present context.

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I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

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