FSB And IMF Caution Against Blanket Crypto Bans.
Last week, the International Monetary Fund and the Financial Stability Board published a joint report advising against implementing blanket bans on crypto-asset activities. Instead, they recommend comprehensive regulations and targeted restrictions to mitigate the associated risks. The news comes at a time when crypto is making significant regulatory strides, including a recent court victory for Grayscale vs. the Securities and Exchange Commission, so it’s essential to understand the substance of the report and its implications for the global crypto landscape.
The report emphasizes the need for a comprehensive regulatory approach to crypto-assets. It suggests that jurisdictions should build strong monetary policy frameworks, guard against extreme capital flow volatility, and adopt unambiguous tax treatment of crypto-assets. They believe this comprehensive approach, as opposed to ignoring consumer demand, will best address the macroeconomic risks associated with the crypto sector.
Roadmap For Implementation
The FSB and IMF have developed a roadmap to ensure the effective implementation of their recommendations. This roadmap includes ongoing efforts to build institutional capacity beyond G20 jurisdictions and into emerging markets, where crypto is needed most. It also aims to improve global coordination, cooperation, and information sharing while bridging the data gaps necessary to understand the rapidly evolving crypto-asset ecosystem.
The report also acknowledges that emerging markets and developing economies may wish to implement additional targeted measures that exceed the global regulatory baseline, stating: “Jurisdictional characteristics that may determine vulnerabilities to macro-financial risks of crypto-assets include: (i) size of the economy and financial system, (ii) regulatory priorities, (iii) institutional quality and capacity, and (iv) level of financial integration into the global economy.” These measures would address specific risks unique to their jurisdictions.
The FSB and IMF also highlight the potential risks of global stablecoins. If these become easier and cheaper to hold in large quantities, rapid capital flight could occur, posing a significant threat to financial stability. The report also warns that stablecoins may transmit volatility more abruptly than other crypto-assets.
Need For Targeted Restrictions
The IMF and FSB agree that blanket bans on crypto activities could lead to activity migration to other jurisdictions, thereby creating spillover risks. The report states, “[They]
also tend to increase the incentives for circumvention due to the inherent borderless nature of crypto-asset, resulting in potentially heightened financial integrity risks…” Instead, they propose targeted and temporary restrictions to manage risk factors during stressful times or while countries find better internal solutions. How and when these restrictions would be implemented on a permissionless blockchain is unclear.
The report, synthesizing the IMF’s and FSB’s policy recommendations and standards, considers the macroeconomic and financial stability implications of crypto-asset activities. “Crypto-asset issuers and service providers are conducting a wide range of functions and activities, which increases crypto-asset markets’ interconnectedness.” The report also explains how these activities might interact and how the IMF and FSB’s policy recommendations fit together.
Cooperation Among Jurisdictions
The FSB, whose core mandate includes coordinating the development of financial sector policies, was tasked by the G20 to promote cooperation among jurisdictional financial authorities. The aim is to ensure that crypto-asset activities are subject to robust regulation and supervision proportional to their financial stability risks.
The FSB and IMF also encourage implementing the Financial Action Task Force anti-money laundering and counter-terrorist financing standards. This move, they argue, will address risks to financial integrity and hinder criminal and terrorist misuse of the crypto-asset sector.
While addressing crypto-asset risks, the FSB and IMF underscore the importance of supporting responsible innovation “…while preserving financial stability.” They believe that a balanced regulatory approach can facilitate the growth of the crypto sector while ensuring financial stability and integrity.
The joint paper by the FSB and IMF reflects the growing recognition of crypto-assets and the need for a balanced regulatory approach. It serves as a valuable guide for jurisdictions worldwide as they grapple with the challenges and opportunities of the crypto revolution. As the crypto landscape continues to evolve, the insights from this report will undoubtedly play a vital role in shaping future regulatory policies.
