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“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.
“Current cryptocurrency systems appear to lack attributes that are important for sovereign monetary regimes,” according to the organisation. The difficulties range from licence requirements to data and privacy concerns, as well as know your customer (KYC) norms and anti-money laundering regulations.
In fact, the World Economic Forum is currently recommending that these challenges be addressed through international cooperation. Top financial organisations, including the Bank for International Settlements, are testing the technology for smooth cross-border payments settlements.
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.”
A strategy similar to that used by Singapore to assure both compliance and innovation could be beneficial. The country is not only in the forefront of crypto-adoption, but also of granting licences and regulating crypto-businesses.
In the long run, the World Economic Forum favours a similar regulatory paradigm. A cryptocurrency ecosystem that is competitive, inclusive, and risk-based in order to facilitate market innovation and development.