Unified crypto regulation now closer to reality

The proposed global regulatory framework for cryptocurrencies inched closer to finality thanks to last week’s consensus on the G20 New Delhi Declaration. The group endorsed recommendations of the IMF-Financial Stability Board (FSB) to regulate, supervise and oversee cryptocurrencies with a unified set of regulations. The proposed cross-border framework operates on the principle of the same activity, same risk, and same regulation and establishes a minimum baseline that jurisdictions must comply with. Notably, the proposed framework makes it easier to operate across borders and helps exchange information to help tamp down money laundering and terror financing. The G20 finance ministers and central bank governors will meet again next month to take the proposal further.

Over the past decade, cryptocurrencies have gained prominence and have about 420 million users, according to crypto exchange Coinbase. Yet, their regulation, be it of crypto exchanges or crypto transactions, remains a concern. Though they are subject to scrutiny, regulation varies from country to country. Last October, the OECD introduced the Crypto-Asset Reporting Framework (CARF) to give tax authorities greater visibility into crypto transactions. The European Union adopted these norms in May 2023, and all 27 European nations must adhere to the CARF, setting procedures for automatic information sharing. Along similar lines, the G20, for the first time, is formulating uniform regulations to be adopted by all jurisdictions, including the EU. However, several countries are outside the G20 remit, and it is unclear if they will be asked to enforce the group’s regulations. It’ll also be interesting to see how countries with laws governing cryptos integrate the proposed G20 regulations.

As Coinbase notes, cryptocurrencies were born out of ideological opposition to centralised financial control and grew into a global asset class relatively unburdened by the strictures governing other products like stocks, bonds or currencies. Though they gained popularity, their value is often subject to volatility. For instance, in 2021, the total market value of crypto-assets grew 3.5-fold, only to shrink a year later from a peak of $2.6 trillion to under $1 trillion, according to the IMF. It even warned against using crypto as legal tender, especially in unstable economies. While policymakers’ attempts to fix the grey areas that helped crypto assets thrive are welcome, they must balance innovation and regulation.

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