The International Monetary Fund (IMF) has proposed measures to standardize the crypto at the World Economic Forum (WEF) in Davos. In a note published this week, the IMF said:
“During times of stress, we’ve seen market failures of stablecoins, crypto-focused hedge funds, and crypto exchanges, which in turn raised serious concerns about market integrity and user protection. And with growing and deeper links with the core financial system, there could also be concerns about systemic risk and financial stability in the near future.”
Regulations to address crypto concerns
According to the regulator, the only way to counter these issues would be to double down on crypto regulations. First, the regulator urges that all businesses dealing with crypto assets be properly regulated, registered, and approved.
This comprises service providers in the areas of storage, transfer, exchange, settlement, and custody, who are subject to the same regulations as their counterparts in the conventional financial industry. It mandates that client assets be held separately from corporate assets and that the authority tasked with overseeing them be defined clearly.
Second, the IMF emphasizes that greater scrutiny must be focused on firms that over multiple services in the cryptocurrency ecosystem. As such, such institutions should be subject to strict regulations on transparency to help identify all dependencies and operations, and the relevant authorities should assess and prohibit any potential conflicts of interest.
Third, as more and more people look to stablecoins as a safe haven for their wealth, issuers of these coins should be held to stringent prudential regulations. Per the regulator, such assets, without adequate control and regulation, can threaten the stability of the monetary and financial systems. It adds that regulating major stablecoins on the same scale as the banking industry may be necessary.
Fourth, existing financial institutions that deal in cryptocurrencies should be subject to explicit regulations addressing the risks associated with crypto transactions. Lastly, the IMF asserts that a robust global crypto regulatory and supervisory structure is needed. Due to crypto’s decentralized structure, federal agencies are ill-equipped to handle virtual currencies, and only a unified strategy that can swiftly adjust to changes is adequate.
