IMF, FSB craft blueprint for crypto-asset regulation

Multilateral organizations the International Monetary Fund (IMF) and the Financial Stability Board (FSB) have charted a blueprint for regulators to collaborate in preventing crypto-assets from jeopardizing macroeconomic and financial stability

The paper synthesizing separate suggestions by the IMF and the FSB has been compiled at the request of the Indian G20 presidency and will form a key part of the agenda for discussions at the G20 leaders’ summit over the weekend.

The paper comes two days after finance minister Nirmala Sitharaman called for setting up a framework for handling challenges related to crypto-assets.

“During India’s term as president at the G20, we have presented the idea that there needs to be a system for managing problems associated with crypto-assets,” Sitharaman had said while addressing the Global Fintech Fest on Tuesday.

The collective recommendations offer a comprehensive guide to help authorities address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through the so-called decentralized finance (DeFi).

The paper describes how the policy and regulatory frameworks developed by the IMF and the FSB, along with standard-setting bodies, fit together and interact with each other, but it does not establish new policies, recommendations, or expectations for relevant member authorities.

Widespread adoption of crypto-assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability, the paper said.

To address macroeconomic risks, jurisdictions should safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility, and adopt unambiguous tax treatment of crypto-assets, it added.

The IMF-FSB paper calls for regulating and supervising licensed or registered crypto-asset issuers and service providers to support the functioning of capital flow measures, fiscal and tax policies, and financial integrity requirements.

To address risks to financial integrity and mitigate criminal and terrorist misuse of the crypto-assets sector, jurisdictions should implement the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards that apply to virtual assets and virtual asset service providers, it said.

The road map envisaged in the paper includes enhancing global coordination, cooperation, and information sharing, while also addressing the data gaps necessary to understand the rapidly changing crypto-asset ecosystem.