• The World Economic Forum has released a white paper on crypto asset regulation, assisted by its Digital Currency Governance Consortium.
• Global coordination is necessary for crypto asset regulation to prevent ambiguity, regulatory arbitration and inconsistent enforcement.
• Switzerland and Japan were cited as examples of self- and co-regulation while the United States alone was seen as the home of ‘regulation by enforcement’.
The World Economic Forum Publishes Crypto Asset Regulation Recommendations
The World Economic Forum (WEF), with assistance from its Digital Currency Governance Consortium, has published a white paper on crypto asset regulation. In this paper, the authors identified several challenges to regulating crypto assets that must be addressed in order to ensure effective regulation. These include the presumption of “same activity, same regulation” and the anonymity provided by certain aspects of cryptocurrency technology.
Global Coordination Is Necessary for Effective Crypto Asset Regulation
The authors argued that global coordination is necessary in order to prevent regulatory arbitrage and inconsistency between different countries and entities when it comes to enforcing regulations related to cryptocurrencies. They identified various types of approaches that may be taken toward regulating cryptocurrencies such as outcome-based, risk-based or agile regulations which adopt a responsive approach based on changing circumstances in the industry.
Switzerland & Japan Are Examples of Self & Co-Regulation
As examples of self-regulation, Switzerland and Japan were both highlighted in the paper as having adopted effective frameworks for managing their respective crypto industries through self-regulating organizations such as FINMA in Switzerland or FSA in Japan respectively. The authors also noted that these countries have managed to achieve successful cooperation between regulators and industry participants which has resulted in improved clarity when it comes to setting expectations for all involved parties.
United States Employs ‘Regulation By Enforcement’ Approach
In contrast with Switzerland and Japan which employ self/co-regulation models, the United States was described by WEF’s paper as employing an approach known as “Regulation By Enforcement” wherein regulators issue edicts without any prior discussion with industry participants or other stakeholders about what should be expected from them regarding compliance matters. This practice was deemed not suitable for building out a framework due to its lack of meaningful dialogue between all relevant parties regarding what should or should not be regulated within cryptocurrency industries across different jurisdictions.