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10 January 2020

IMF: Regulation of crypto assets

The rapid growth of crypto assets has raised questions about the appropriate regulatory perimeter and the ability of the existing regulatory architecture to adapt to changing conditions. Effective regulation of financial services promotes long- term economic stability and minimizes the social costs and negative externalities from financial instability.

The same underlying principles for regulation should apply to nascent products and services based on innovative technologies, notwithstanding design challenges. The purpose of this note is to identify selected elements of regulation and supervision that authorities should consider when deciding on a regulatory framework for crypto assets.

The note is structured in two main sections: the first briefly summarizes some of the most relevant risks related to crypto assets, while the second concentrates on how regulatory frameworks could address these risks. To illustrate the analysis, some country examples are compiled in the Appendix.

The definition of a crypto asset is far from globally uniform. In this note, the term crypto asset denotes digital assets that use cryptography for security and are coins or tokens of distributed ledgers and/or blockchains, including asset-backed tokens. Authors also recognize the distinction between “coins” and “tokens” but may use the two terms interchangeably.

The IMF/World Bank Bali Fintech Agenda (BFA) proposes a framework of high-level issues that countries should consider in their policy discussions. The Agenda brings together key considerations for policymakers and the international community into 12 elements, including enabling technologies, ensuring financial sector resilience, addressing risks, and promoting international cooperation.

This note aims to provide a discussion into regulatory and supervisory considerations in relation to a specific area of fintech— crypto assets—going deeper into the monitoring, regulation, and supervision elements of the BFA. While the international regulatory community is actively engaged in discussions around crypto assets, approaches are varied and often only partially address potential risks. The fast-moving pace of fintech challenges authorities and standard setters to develop sound regulatory and supervisory approaches to contain the risks while supporting healthy innovation.

This note does not aim to establish standards or to provide prescriptive solutions, but rather to assist policymakers in various jurisdictions in framing the discussion and issues relative to the regulation of crypto assets. The underlying principle is that regulation and supervision are needed when there is sufficient concern that there are potential market failures or externalities that bring risks to financial stability; warrant the need to protect financial markets, consumers, and investors from abuse; or lead to excessive regulatory arbitrage. The need and features of regulation will therefore depend on the characteristics of crypto assets and related products and specific country circumstances.

Full paper on IMF

© International Monetary Fund

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