Erasing Borders: Globally Harmonized Regulation for the Digital Economy
Main Takeaways
Inconsistent global regulations can present a challenge for cryptocurrencies' borderless nature. Varying rules of the road can hinder global crypto adoption and put additional strain on crypto users and industry.
The best way to ensure that anyone, anywhere can safely benefit from the value and utility of the digital-asset ecosystem is to achieve a globally unified regulatory framework.
Recently, G20 Finance Ministers and Central Bank Governors adopted the financial services sector roadmap for crypto regulation as proposed by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). Implemented effectively, this could be an integral building block for a safe, secure, and sustainable global digital economy.
One of blockchain’s fundamental properties is that it is borderless. Anyone with an internet connection, regardless of who or where in the world they are, can access the infrastructure of the world’s digital-asset ecosystem and reap the numerous benefits that it offers. This freedom of choice and access can help improve lives around the world, including for those excluded from traditional financial infrastructures.
Apart from this inspiring vision, there is also the reality on the ground. Borders still matter. Governments still control the movement of products and services domestically and internationally, and in most countries industries such as financial services are among the most regulated – all for good reasons. As blockchain and Web3 go mainstream, the only responsible path forward is to work together to embed this new cross-border digital-asset ecosystem into national and global regulatory frameworks. This will allow it to evolve harmoniously with incumbent institutions and practices.
The Problem With Disunited Regulation
Now, the question is: Can the digital-asset ecosystem continue to evolve cross-border as it becomes increasingly regulated? Within a framework of responsible innovation, involving both cooperation in support of other’s goals and collaboration in support of shared goals, there is no reason why it cannot. The problem today is that such a standardized framework does not yet exist.
Currently, some nations have regulatory regimes for digital-asset service providers, while others have not, and even those who have may vary in their definitions and conduct and business requirements. In different countries, crypto, an integral part of the blockchain and digital-asset ecosystem, can be overseen by different types of regulatory authorities, depending on how such assets are categorized in a given jurisdiction. Furthermore, there is great variance in how countries approach the taxation of crypto assets.
Evidently, this lack of regulatory harmonization can be burdensome and can introduce duplication and conflicting requirements for many digital-asset businesses, not just those operating in crypto. These digital-savvy organizations used to operating globally in cross-border, data-native, always-on environments must increasingly develop tailored approaches to comply with bespoke requirements wherever they operate.
Much more importantly, the increased complexity and fragmentation of requirements creates additional challenges for user access, safety and security – affecting the level of choice, competition and value people are exposed to. At worst, it may potentially drive consumers to unregulated markets or operators.
Consolidating and standardizing regulation internationally is always a difficult task, and it is especially true for something as innovative and emotive as crypto. Fortunately, important work is underway in this area, and we are already seeing some promising developments.
Roadmap For Coordinated Action
The recent G20 Finance Ministers and Central Bank Governors (FMCBG) meeting under the Indian Presidency held in Marrakech, Morocco saw the group make significant steps in the direction of unifying the approach to crypto-assets among the world’s biggest economies and beyond. The FMCBGs adopted the roadmap for crypto regulation, as proposed by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) in their Synthesis Paper discussed at the G20 New Delhi Leaders’ summit in early September.
The aim of the roadmap is to address issues common across the majority of jurisdictions, and increase the likelihood of countries enacting largely similar policies, which could eventually contribute to the creation of a unified crypto regulatory framework – all of which is welcome.
Regulatory frameworks should provide certainty and a safe space for innovation, and drive consumer trust, market order, clarity, and impact. This framework will be a success if various stakeholders, across many regions, find a way to cooperate such that achieving shared goals would simultaneously advance their own objectives. If achieved, it will lay the foundations necessary to ensure financial stability and consumer protection within the digital-asset ecosystem, and will provide the confidence regulators and industry need to innovate together.