Borderless crypto markets show need for global rules

More than 500 years passed between the founding of the world’s first bank, Monte dei Paschi di Siena, and the creation of the first set of global banking standards: the Basel agreement of 1988.

According to that benchmark, global policymakers are at the forefront of designing standards for cryptocurrencies, which emerged just 13 years ago with the debut of Bitcoin in January 2009. Forums like the Basel Committee on Banking Supervision, the Financial Stability Board and securities regulator Iosco are already discussing global standards for cryptocurrencies.

But this year has brought a new urgency to those talks, as the explosive growth of crypto markets, coupled with their growing ties to the regulated sector and the widespread adoption of coins by people, have prompted the FSB to warn that stability risks could “escalate rapidly”.

“Anything that is growing and not regulated can cause huge problems if we don’t address it,” Mairead McGuinness, the EU’s financial services commissioner, warned at an FT event on February 17. She described how young people are now investing in crypto as a “hobby” and receiving financial advice from the video-sharing platform TikTok.

“Collective activities are alarming if they are not regulated, and that is why there is a global need for principles throughout the crypto space,” he emphasized.

The borderless nature of cryptocurrency trading companies, whose decentralized businesses may be scattered across physical territories and servers, further underscores the need for a global approach to policing them.

“There are cryptocurrency businesses that seem to be everywhere and yet are physically nowhere,” said Mark Steward, head of markets oversight and compliance at the UK Financial Conduct Authority, at the same event. February 17th. “That’s a real red flag for everyone and something that should be of concern to regulators around the world.”

Across the world from the FCA, Ashley Alder, director of the Hong Kong Securities and Futures Commission and chair of global securities regulator Iosco, sees coordination between the various domestic and international regulators as “of paramount importance.” . She says that she wants to “explore a holistic and integrated approach to virtual asset activities and reduce regulatory arbitrage,” meaning any variation in rules between territories.

Yet while policymakers in major financial centers agree on the need for global standards, Benoît Coeuré, the then head of the Bank for International Settlements’ innovation center, warned in December of the risk that jurisdictions will follow “different paths and produce a system that is globally inconsistent.”

The EU has already established its proposed regional principles in the Markets in Crypto Asset (Mica) directive. This was presented to the European Parliament in October 2020 and is expected to come into force around 2024, covering everything from keeping custody of digital assets to selling and trading them, offering advice and exchanging them for hard currency.

Meanwhile, in Hong Kong, Alder says his agency has been “pragmatically and creatively applying its existing powers” ​​to be able to regulate cryptocurrencies as it would other securities. Or, as he puts it: “Based on a ‘same business, same risks, same rules’ approach”.

More formal rules are coming. Hong Kong is now developing legislation that will ensure that all crypto assets are captured by the same regulation “regardless of whether the crypto assets traded on these platforms fall under the traditional definition of ‘securities’.”

Neighboring China has taken a more absolute approach. In September, the authorities declared all crypto activities are “illegal” and he vowed to investigate Chinese nationals working for foreign crypto exchanges.

Singapore, on the other hand, has incorporated cryptocurrencies into its anti-money laundering regime. According to a spokesperson for the Monetary Authority of Singapore, regulators are “ready to adapt our rules as necessary to manage the policy balance” between supporting innovation and managing risk.

Gary Gensler, Chairman of the US Securities and Exchange Commission.

Gary Gensler, Chairman of the US Securities and Exchange Commission, at its headquarters in Washington © Melissa Lyttle/Bloomberg

In the US, Securities and Exchange Commission Chairman Gary Gensler has been entrepreneur for Congress to give his agency, and others such as the Commodity Futures Trading Commission, powers to provide “stronger oversight and investor protection” in large parts of the crypto market that are “sitting astride” in the regulatory framework. He has warned that these are “full of fraud, scams and abuse”.

The CFTC has also warned of the dangers of “regulating through enforcement” and called on Congress to establish clearer rules about what is legal and what is not.

In the UK, the FCA has started registering cryptocurrency companies to comply with anti-money laundering regulations and has warned of a crackdown on ads once cryptocurrencies enter the FCA financial promotions regime. “Broader legislation is needed here,” Steward said at the recent FT event.

In addition to these national regulatory moves, all the major territories say they are keeping an eye on global developments and engaging in international discussions. An official notes that the EU’s Mica directive was designed to implement international recommendations where they existed, including the work the FSB had done around stablecoins, a type of cryptocurrency whose value is backed by real assets, such as traditional currencies. gold or short coins. term bonds.

Still, that does not mean that differences in regulatory treatment will not be introduced, even between regimes with the shared goal of protecting consumers and maintaining financial stability. For this reason, crypto regulation has now shot up the FSB’s agenda.

Klaas Knot, chairman of the FSB, says: “The FSB would naturally be positioned to take that lead. We have the power of convocation. . . we bring together the central banks, the ministries of finance, which represent the highest legislators, the supervisory agencies, both banking and insurance, securities and some international organizations. They are all at the FSB table.

Knot hopes that the FSB’s work on global crypto standards can progress “quite a bit in 2022.” The next step would be to publish those standards and have them quickly implemented by the 24 member countries of the FSB, and others beyond.

Everyone hopes that swift action can ensure that the fate of cryptocurrencies is less ignominious than that of Monte dei Paschi: once famous as the world’s oldest bank, now better known as the institution that brought closer to collapse due to the financial crisis in the eurozone.

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