Here’s what the WEF is proposing instead of an ‘ineffective’ ban on cryptos
“A clear, constructive and adaptive regulatory environment for cryptocurrencies would lay a foundation for
sustainable innovation, competition and transparency, and allow customers and businesses to safely realize the benefits they may offer.”
In its latest report, the World Economic Forum has outlined the need for cryptocurrency regulations on the back of greater interest in the sector.
According to the organization, “current cryptocurrency systems appear to lack features that are critical for sovereign monetary regimes.” The issues range from licensing requirements, data and privacy considerations, know your customer (KYC) norms, anti-money laundering regulations, among others.
In fact, the WEF is now suggesting that these concerns should be addressed through international cooperation. Top financial institutions, including the Bank for International Settlements, are examing the technology for smooth payments settlements across jurisdictions.
While there are loopholes, WEF proposed to proportionately apply the existing monitoring and record-keeping framework in the crypto-ecosystem. What’s more, the organization also reiterated the need for regulators to balance mitigating risks and enabling innovation with a clear set of rules.
SEC Commissioner Hester Peirce recently agreed in an interview that there is still a lack of regularity clarity in the cryptocurrency space. Popularly dubbed ‘Crypto Mom,’ Peirce had previously spoken about “slow and inflexible” regulations pushing innovations out of the United States.
A conservative regulatory approach, ergo, might result in ‘ jurisdictional arbitrage‘ due to the decentralized nature of the technology.
In fact, the same was seen in the case of China. A clampdown on mining operations in China resulted in the relocation of the miners to other parts of the world. Hence, banning may not really be effective.
Alpen Sheth, Senior Technologist at Mercy Corps Ventures, shares this sentiment.
“Banning cryptocurrencies will not prevent adoption, it will only limit regulators’ abilities to guide market activity around these networks and address their unique potential risks.”
Similarly, there are risks of ‘under-regulation’ too, leading to frauds and losses to investors. It’s worth noting, however, that the report was quick to underline that illicit activity constituted only 0.34% of all cryptocurrency transactions. The aforementioned figures, in fact, are much lower than the percentages seen in traditional financial systems.
Therefore, along with recognition,
“… public and private sectors should work together to find solutions that could give rise to a successful approach.”
An approach similar to the one taken by Singapore to ensure both compliance and innovation could be useful. The country is not only leading in crypto-adoption, but it is a forerunner in granting licenses and regulating crypto-businesses.
In the long run, WEF advocates a similar regulatory model. A cryptocurrency ecosystem that is competitive, inclusive, and risk-based to allow innovation and development of the market.