IMF published notes on the regulation of crypto assets and on the institutional arrangements for fintech regulation and supervision. The note on the regulation of crypto assets identifies selected elements of regulation and supervision that authorities should consider when deciding on a regulatory framework for crypto assets. The note on institutional arrangements for fintech regulation and supervision presents findings from a review of the institutional arrangements in 10 jurisdictions; it highlights that the fintech institutional framework mostly mirrors the established responsibilities for financial-sector policy, supervision, and development.
Note on regulation of crypto assets
The note briefly summarizes some of the most relevant risks related to crypto assets and concentrates on how regulatory frameworks could address these risks. To illustrate the analysis, some country examples are compiled in the Appendix. Some of the risks incurred by investors are, for instance, operational and cyber risk of wallet providers and the crypto trading platform; market, credit, and default risk of issuers; comingling risk of assets; liquidity risk of both issuers and service providers; market manipulation; misselling; and fraud. Crypto assets are also vulnerable to misuse for money laundering and terrorist financing. In addition, crypto assets may generate contagion and business model risks, which may potentially become systemic and warrant a prudential response.
The note highlights that regulators need to continuously monitor the crypto-asset landscape to understand the direction of industry developments. Ongoing efforts to address data gaps to monitor markets and potential contagion effects to the existing financial sector are welcome. Regulators need to take a proactive approach to address any risks potentially emerging from industry developments and swiftly build capacity and expertise in new instruments and new technology, given the high reputational risks involved. Capacity and resources of supervisory authorities, in addition to the potential damage to trust in the financial sector, will need to be evaluated in each case. Moreover, regulators also need to clearly communicate the role of regulation and supervision to the public, emphasizing the risks that are borne by investors and consumers. While regulation should be tailored to jurisdiction-specific features, a consistent approach and international cooperation will be key to prevent and minimize regulatory arbitrage and potential inconsistencies in the application of laws and regulations.
Note on institutional arrangements for fintech regulation and supervision
The note reviews the institutional arrangements for fintech regulation and supervision in 10 jurisdictions, including both advanced economies and emerging market and developing economies. These jurisdictions are UK, France, US, Hong Kong, United Arab Emirates, Dubai and Abu Dhabi, Japan, Malta, Singapore, and Switzerland. The note describes the division of responsibilities among national authorities, the organization of supervisory authorities’ main fintech functions, and domestic and international coordination on fintech matters. The note highlights that countries differ in the emphasis placed on promoting the development of fintech as opposed to regulating it. Some regulators prioritize traditional prudential and conduct objectives. Others give more weight to innovation, inclusion, competition, and development.
Most supervisors have set up a core fintech group and an expert network. The core group is usually full time and is supported by a network of experts across the agency which is available to help as needed on specific issues. Domestic and international coordination takes various forms. Coordination among domestic agencies typically makes use of existing senior-level structures; when fintech issues arise, they are referred to a sub-committee or result in the creation of a taskforce to develop proposals. International coordination arrangements range from bilateral agreements and initiatives (for example, fintech Memoranda of Understanding) to multilateral ones coordinated by the standard-setting bodies. In addition, a new multilateral network, the Global Financial Innovation Network, has recently been set up to exchange lessons learned, develop a common sandbox and help firms navigate between different jurisdictions as they aim for scale internationally. Finally, the note emphasizes that, looking to the future, regulators need to be prepared to change their institutional arrangements quickly, given the speed and ubiquity of fintech development.
Keywords: International, Banking, Insurance, Securities, Fintech, Crypto Assets, Institutional Arrangement, Cyber Risk, IMF
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