The need to bring the crypto industry under a regulatory framework has become one of the main goals of financial regulators around the world. Officials at the Bank of International Settlements (BIS) have proposed three crypto rules that could be taken into consideration by those working to shape the laws surrounding the digital asset industry. The goal of these potential crypto regulations is to eradicate the industry from the risks associated with it, including volatility and opportunities to be anonymously exploited by malicious users for illicit activities such as hacking and asset theft.
“Prohibit specific crypto activities,” is the first suggestion the BIS proposes through a official blog post. While the BIS did not name the types of crypto activities that should be banned, specific crypto activities have recently caught the attention of global regulators. The use of crypto mixers like Tordano Cash, for example, has irked financial regulators to ban their use. Scammers who steal crypto assets usually send their stolen assets to anonymous wallets after passing them through crypto mixers.
However, the BIS noted some issues that can arise when banning crypto activities. “The extreme option is total or targeted banning of crypto activities. Implementing this option would have to do with the challenge of enforcement,” the blog states.
Isolating crypto activity from traditional financial (TradeFi) mechanisms has been cited by BIS economists as the second suggestion. Separating crypto from existing trading-like features would make it niche and explored by fewer people, they said.
A number of countries are concerned that cryptocurrencies, which can directly facilitate hefty and cross-border payments, could become an alternative to fiat currencies and ultimately shake up global financial systems.
Raghuram Rajan, the former governor of the Reserve Bank of India, even recently said crypto players should refrain from advertising these assets as an “inflation proof” alternative to existing fiat currencies.
“Contains crypto so that it remains more of a niche activity. This could be done primarily by restricting the flow of money in and out and by limiting other connections to TradFi. At the same time, containment would seek to curb any linkage to the real economy (as a means of payment for goods and services, or in response to the tokenization of assets in the real world),” the post read.
On the latter suggestion, the BIS reiterated the importance for global financial regulators to formulate crypto laws similar to those currently in place for traditional financial organizations.
Mandating KYC requirements and making sure crypto companies inform authorities about suspicious transactions are some laws that could be imposed on the crypto industry at large, among other regulations. “Some entities lack basic accounting, corporate governance, compliance. and controls that are a prerequisite for participating in TradeFi. Some brokers bridging TradeFi and crypto could be brought under regulation,” the BIS post added.
The European Union (EU) has already passed the long-awaited MiCA legislation that would operate uniformly across all its member states in terms of crypto laws.
India is also working with other members of the G20 group to formulate crypto laws that would work on an international level. Japan and Germany, along with India, have called for global rules around crypto.
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