• Recommendations for regulating the cryptosphere including licensing, registering, and authorizing crypto asset service providers.
• Strict prudential requirements for stablecoin issuers and clear requirements for established financial institutions dealing in cryptocurrencies.
• A robust, global crypto regulation and supervision framework needed to ensure effective regulation.
The International Monetary Fund (IMF) has issued a five-point plan to provide a framework for exchanges and investors to work in the cryptosphere. The recommendations are designed to regulate the sector and protect customers from the potential risks that come with investing in cryptocurrencies.
Firstly, the IMF recommends that crypto asset service providers, such as those providing storage, transfer, exchange, settlement, and custody services, be licensed, registered, and authorized with the same rules that govern providers of services in the traditional financial sector. To ensure customer assets are kept secure and to limit conflict of interest, the responsible authority should be clearly defined.
Secondly, entities that carry out many different functions in the cryptosphere should be subjected to additional oversight. Such entities should be subject to stringent regulations on transparency so that all dependencies and operations can be clearly identified.
Thirdly, stablecoin issuers should be subject to strict prudential requirements as their use as a store of value is increasing. Without proper oversight and regulation, these holdings could destabilise monetary and financial stability. In cases of major stablecoins, a regulation on the scale of that employed in the banking sector could be required.
Fourthly, established financial institutions that deal in cryptocurrencies should be subject to clear requirements regarding the risks that arise from transacting in crypto.
Finally, the IMF calls for a robust, global crypto regulation and supervision framework. Crypto’s borderless nature has highlighted the ineffectiveness of national authorities to adequately deal with the digital coins, and only a unified approach that can adapt to the rapidly changing landscape can ensure effective regulation.
To this end, the IMF seeks to work with all stakeholders to build a global regulatory framework that promotes innovation, consumer protection and financial stability. The five-point plan provides a starting point for further development which could revolutionize the cryptosphere, making it a safe and secure space for investors.