Global Crypto Standards Needed, Warns IMF

October 5, 2021
The International Monetary Fund (IMF) has published its latest report on crypto-assets, cautioning that the opportunities that the industry presents also come with plenty of risks.

The International Monetary Fund (IMF) has published its latest report on crypto-assets, cautioning that the opportunities that the industry presents also come with plenty of risks.

Policymakers internationally need to implement standards on cryptocurrencies to minimise the risk of regulatory arbitrage in the payments space, as well as when dealing with issues such as money laundering.

“The absence of effective supervision and regulatory frameworks can create regulatory arbitrage and curtail enforcement,” the report warns.

For example, consumers are able to access crypto-assets through global crypto exchanges and/or wallets, even though these providers may lack a presence in the local market.

“The use of sovereign currencies on these platforms can occur through third-party payment processing companies taking advantage of regulatory loopholes,” the report points out.

Some jurisdictions, such as Malaysia, Nigeria and Turkey, recently imposed restrictions on payments and/or transactions through global exchanges, such as Binance.

But these actions are unable to prevent on-chain transactions. For example, person-to-person (P2P) transfers through online chatrooms or the use of decentralised exchanges to complete transactions.

Meanwhile, the anonymity that drove the popularity of crypto-assets to start with, as well as the lack of global standards, has in conjunction made it more challenging for regulators to supervise and monitor the space.

This has created significant data gaps globally, according to the report. For example, regulators may be able to trace crypto transactions that take place on the blockchain, but they will not be able to see the parties that are involved in the blockchain.

Those involved in a crypto transaction may be based across several jurisdictions, with varied regulatory approaches. For example, there are no uniform rules at the EU level yet, although countries such as Singapore have allowed crypto platforms to apply for the same licence as payments institutions.

Despite some progress through the obligations for crypto-asset providers set out by the Financial Action Task Force (FATF), their implementation is still at an early stage and there have been notable delays in the implementation of guidance, including the so-called travel rule, which means that crypto firms must obtain, hold and exchange information about the originators and beneficiaries of virtual asset transfers.

In July, FATF warned that a lack of global travel rule compliance is holding the private sector back from meeting anti-money laundering standards for virtual assets.

“Monitoring the activity of crypto-asset service providers is complicated by limited, fragmented, and, in some cases, unreliable data,” the IMF report warns, adding that public data sharing by crypto-asset providers is currently mostly voluntary and lacks a standardised approach.

For these reasons, the IMF has urged authorities internationally to take decisive, coordinated and swift actions to ensure that benefits are able to be realised, while ensuring vulnerabilities do not drive the sector to become a systemic risk for the financial services industry.

In spite of the clear risks, the IMF does see the potential for the rise of crypto-assets to foster better financial inclusion. In particular, there is a good opportunity to disrupt the international remittances market: “The payment rails of crypto-assets can make some of these services faster and cheaper, especially through the integration of stablecoins, which allow for a stable unit of account.”

This has helped support better financial inclusion in previously unbanked parts of the world, the report concludes.

Our premium content is available to users of our services.

To view articles, please Log-in to your account, or sign up today for full access:

Opt in to hear about webinars, events, industry and product news

To find out more about Vixio, contact us today
No items found.