BitOK's take on IMF and FSB policies for crypto-assets
In early September 2023, the Financial Stability Board (FSB) and the International Monetary Fund (IMF) jointly released a comprehensive document outlining the risks associated with cryptocurrency, response measures, and regulatory recommendations. This document summarizes the findings of the previous efforts by the IMF and FSB, presenting a cohesive and coordinated approach to cryptocurrency regulation.
This report can be broken down into three main components:
1) Risks associated with the use of cryptocurrencies;
2) Response measures implemented by government agencies to mitigate risks;
2) Response measures implemented by government agencies to mitigate risks;
3) The roadmap and recommendations provided by the IMF and FSB.
Following the report, finance ministers and central bank governors from the G20 countries agreed to develop regulatory norms for the crypto market in line with the roadmap outlined in the report.
The key findings of the report include:
The key findings of the report include:
● Cryptocurrencies require a regulatory framework to manage risks to macroeconomic and financial stability as well as other domains;
● Jurisdictions should strengthen monetary and credit policies and establish unambiguous cryptocurrency taxation to address macroeconomic risks;
● In addressing financial stability risks, jurisdictions must implement the recommendations outlined in the joint document and adhere to them;
● Jurisdictions should strengthen monetary and credit policies and establish unambiguous cryptocurrency taxation to address macroeconomic risks;
● In addressing financial stability risks, jurisdictions must implement the recommendations outlined in the joint document and adhere to them;
● Countries may consider adopting specific localized measures that go beyond the global regulatory framework to tackle specific risks.
In this overview, the BitOK team briefly explains the essential points and the core ideas presented in the document.
Roadmap
To establish a coordinating framework, the IMF and FSB will align their efforts with international organizations. The roadmap itself comprises the following steps:
● Implementation of the political aspect of the framework (no earlier than September-October 2024);
● Implementation of the framework beyond the G20 jurisdictions (no earlier than September-October 2024);
● Global coordination, collaboration, and data exchange (by the end of 2024);
Addressing gaps in data collection (by the end of 2025).
● Implementation of the framework beyond the G20 jurisdictions (no earlier than September-October 2024);
● Global coordination, collaboration, and data exchange (by the end of 2024);
Addressing gaps in data collection (by the end of 2025).
Progress in implementing these stages will be discussed at meetings of finance ministers and central bank governors from G20 countries. Overall, the FSB-IMF roadmap on crypto regulation is anticipated to be fully implemented by the end of 2025.
What Regulators Say
1) No total ban
According to the document, the FSB and IMF do not endorse a complete ban on cryptocurrencies. Instead, regulators propose implementing comprehensive oversight of the industry. In the regulators' view, a total ban could be expensive and technically challenging to enforce.
Moreover, experts from the FSB and IMF highlight that banning cryptocurrencies in one jurisdiction may result in the market shifting to another jurisdiction.
It is also emphasized that cryptocurrencies should not be granted the status of official currency or legal tender. Even in the case of official cryptocurrency use, it is crucial to consider operational and fiscal risks to avoid potential fluctuations in government revenues caused by changes in cryptocurrency prices.
Our Take. The proposal to refrain from a complete ban on cryptocurrencies reflects a sound understanding of the cryptocurrency market dynamics. Advocating for a comprehensive approach to regulation can minimize risks while preserving the potential of cryptocurrencies for innovation and economic growth.
According to the document, the FSB and IMF do not endorse a complete ban on cryptocurrencies. Instead, regulators propose implementing comprehensive oversight of the industry. In the regulators' view, a total ban could be expensive and technically challenging to enforce.
Moreover, experts from the FSB and IMF highlight that banning cryptocurrencies in one jurisdiction may result in the market shifting to another jurisdiction.
It is also emphasized that cryptocurrencies should not be granted the status of official currency or legal tender. Even in the case of official cryptocurrency use, it is crucial to consider operational and fiscal risks to avoid potential fluctuations in government revenues caused by changes in cryptocurrency prices.
Our Take. The proposal to refrain from a complete ban on cryptocurrencies reflects a sound understanding of the cryptocurrency market dynamics. Advocating for a comprehensive approach to regulation can minimize risks while preserving the potential of cryptocurrencies for innovation and economic growth.
2) AML/CFT rules can't blindly apply to DeFi and P2P
The FSB and IMF acknowledge the difficulty some jurisdictions face in identifying participants in P2P transactions. Regulators noted that the absence of intermediaries in such transactions means that the traditional approach of applying AML/CFT rules to crypto businesses cannot be employed.
Our Take. Undoubtedly, the traditional AML/CFT compliance approach for identifying participants in P2P transactions is unfeasible. This is because there is no intermediary in such transactions who could identify participants and verify their identity.
However, similar to the first scenario, there is a lack of specificity in regulation. It's entirely possible that regulators may tighten supervision over centralized P2P platforms, but peer-to-peer transactions themselves are unlikely to be prohibited—unless regulators consider imposing sanctions against specific blockchain networks.
The FSB and IMF acknowledge the difficulty some jurisdictions face in identifying participants in P2P transactions. Regulators noted that the absence of intermediaries in such transactions means that the traditional approach of applying AML/CFT rules to crypto businesses cannot be employed.
Our Take. Undoubtedly, the traditional AML/CFT compliance approach for identifying participants in P2P transactions is unfeasible. This is because there is no intermediary in such transactions who could identify participants and verify their identity.
However, similar to the first scenario, there is a lack of specificity in regulation. It's entirely possible that regulators may tighten supervision over centralized P2P platforms, but peer-to-peer transactions themselves are unlikely to be prohibited—unless regulators consider imposing sanctions against specific blockchain networks.
3) AML for cryptocurrencies can only be effective where FATF requirements are followed
Non-compliance with the recommendations of the Financial Action Task Force (FATF) leads to gaps in AML compliance, as stated in the report. Perpetrators will continue to exploit legal loopholes until all members of the G20 collectively adhere to FATF recommendations.
Among these recommendations is the proposal to require cryptocurrency exchanges to register and comply with all applicable requirements. This means that, in addition to AML/KYC, trading platforms must also adhere to the Travel Rule and other regulatory requirements.
Our Take. Until countries establish clear regulatory requirements, cryptocurrency exchanges are unlikely to agree to establish subsidiaries in certain jurisdictions. Furthermore, FATF previously acknowledged that out of nearly 100 jurisdictions, only 30% successfully implemented Travel Rule requirements. The ongoing inability of different countries to agree on unified "rules of the game" will likely continue to undermine the efforts of the FSB and IMF to create a standardized framework for cryptocurrencies.
Non-compliance with the recommendations of the Financial Action Task Force (FATF) leads to gaps in AML compliance, as stated in the report. Perpetrators will continue to exploit legal loopholes until all members of the G20 collectively adhere to FATF recommendations.
Among these recommendations is the proposal to require cryptocurrency exchanges to register and comply with all applicable requirements. This means that, in addition to AML/KYC, trading platforms must also adhere to the Travel Rule and other regulatory requirements.
Our Take. Until countries establish clear regulatory requirements, cryptocurrency exchanges are unlikely to agree to establish subsidiaries in certain jurisdictions. Furthermore, FATF previously acknowledged that out of nearly 100 jurisdictions, only 30% successfully implemented Travel Rule requirements. The ongoing inability of different countries to agree on unified "rules of the game" will likely continue to undermine the efforts of the FSB and IMF to create a standardized framework for cryptocurrencies.
4) The IMF and FSB are closely monitoring the development of stablecoins
The report underscores the risks associated with stablecoins, emphasizing their unique vulnerabilities to a sudden loss of trust. This, in turn, could trigger a user exodus from stablecoins and create liquidity shortages to meet their obligations.
Our Take. Currently, the transparency of assets backing stablecoins is a significant concern. Many issuers neglect financial audits or engage in superficial checks that fail to accurately depict their true financial stability. This poses potential financial risks for stablecoin users.
The report underscores the risks associated with stablecoins, emphasizing their unique vulnerabilities to a sudden loss of trust. This, in turn, could trigger a user exodus from stablecoins and create liquidity shortages to meet their obligations.
Our Take. Currently, the transparency of assets backing stablecoins is a significant concern. Many issuers neglect financial audits or engage in superficial checks that fail to accurately depict their true financial stability. This poses potential financial risks for stablecoin users.
5) Taxation of cryptocurrency
The document repeatedly emphasizes the need for clarity in tax policy regarding cryptocurrencies to avoid ambiguous interpretations. At the same time, tax authorities must actively monitor compliance with tax laws by participants in the cryptocurrency market. Legislation should outline precise taxation rules for cryptocurrency transactions to prevent tax evasion. Additionally, there is a need to enhance cooperation in the realm of cross-border exchange of tax information.
Our Take. Undoubtedly, the issue of taxing cryptocurrency transactions is gradually gaining prominence and becoming increasingly relevant, as many market participants currently use cryptocurrency to evade taxes. To counteract this phenomenon, a reporting system for crypto assets has been implemented under the auspices of the Organization for Economic Cooperation and Development. This system establishes unified reporting standards for participants in the cryptocurrency market and rules for the exchange of tax information among tax authorities.
The document repeatedly emphasizes the need for clarity in tax policy regarding cryptocurrencies to avoid ambiguous interpretations. At the same time, tax authorities must actively monitor compliance with tax laws by participants in the cryptocurrency market. Legislation should outline precise taxation rules for cryptocurrency transactions to prevent tax evasion. Additionally, there is a need to enhance cooperation in the realm of cross-border exchange of tax information.
Our Take. Undoubtedly, the issue of taxing cryptocurrency transactions is gradually gaining prominence and becoming increasingly relevant, as many market participants currently use cryptocurrency to evade taxes. To counteract this phenomenon, a reporting system for crypto assets has been implemented under the auspices of the Organization for Economic Cooperation and Development. This system establishes unified reporting standards for participants in the cryptocurrency market and rules for the exchange of tax information among tax authorities.
6) A holistic and global approach to cryptocurrency regulation
Achieving proper regulation and legislative implementation requires the involvement of numerous governmental bodies, both domestically and internationally. While the primary focus of this comprehensive document is on integrating regulations into the legislation of G20 member countries, it also emphasizes the need for collaborative efforts with non-G20 nations. Many participants in the cryptocurrency market are registered in such jurisdictions, underscoring the importance of interaction for comprehensive coverage.The inclusion of these countries in various conventions, bilateral agreements, and other international acts could help address the global challenge of cryptocurrency regulation.
Our Take. Numerous entities in the cryptocurrency market prefer registration in offshore jurisdictions to optimize tax and regulatory considerations and obscure the true beneficial owner. Alternatively, they operate in countries where cryptocurrency regulation lacks clear boundaries. This has led to these jurisdictions becoming saturated with various companies conducting cryptocurrency operations without any regulatory oversight or limitations.
Achieving proper regulation and legislative implementation requires the involvement of numerous governmental bodies, both domestically and internationally. While the primary focus of this comprehensive document is on integrating regulations into the legislation of G20 member countries, it also emphasizes the need for collaborative efforts with non-G20 nations. Many participants in the cryptocurrency market are registered in such jurisdictions, underscoring the importance of interaction for comprehensive coverage.The inclusion of these countries in various conventions, bilateral agreements, and other international acts could help address the global challenge of cryptocurrency regulation.
Our Take. Numerous entities in the cryptocurrency market prefer registration in offshore jurisdictions to optimize tax and regulatory considerations and obscure the true beneficial owner. Alternatively, they operate in countries where cryptocurrency regulation lacks clear boundaries. This has led to these jurisdictions becoming saturated with various companies conducting cryptocurrency operations without any regulatory oversight or limitations.
