The need to bring the crypto industry under a regulatory framework has become one of the primary goals of financial regulators around the world. Officials from the Bank of International Settlements (BIS) have proposed three crypto rules, that can be taken into consideration by people working on drafting the laws around the digital assets industry. The aim of these potential crypto rules is to eradicate the sector of the risks associated with it, including volatility and chances of being anonymously exploited by malicious users for illicit activity such as hacking and theft of assets.
‘Ban specific crypto activities,’ is the first suggestion proposed by the BIS via an official blog post. While the BIS did not name the kind of crypto activities that should be prohibited, in recent times, specific crypto activities have caught the attention of global regulators. The usage of crypto mixers like Tordano Cash, for instance, has irked financial regulators to prohibit their usage. Scammers who steal crypto assets usually route their stolen assets into anonymous wallets after passing them via crypto mixers.
The BIS, however, did note some issues that may come along with banning crypto activities. “The extreme option is banning crypto activities, either in their entirety or in a targeted manner. Implementing this option would face the challenge of enforcement,” the blog states.
Isolating crypto activity from traditional finance (TradeFi) mechanisms has been listed as the second suggestion by BIS economists. Separating crypto from existing stock trade-like features, would make it niche and explorable by fewer people, they said.
A number of nations are concerned that cryptocurrencies, that can facilitate hefty and cross-border payments instantly, could emerge as an alternate to fiat currencies and end up shaking up global financial systems.
In fact, Raghuram Rajan, the former governor of the Reserve Bank of India recently said that crypto players must refrain from advertising these assets as an ‘inflation-resistant’ alternative to existing fiat currencies.
“Contain crypto so that it remains more of a niche activity. This could be done first and foremost by limiting the flow of funds into and out of it and by limiting other connections with TradFi. At the same time, containment would seek to curb any linkages with the real economy (as means of payment for goods and services, or in response to the tokenisation of real-world assets),” the post noted.
As for the last suggestion, the BIS has reiterated the importance for global financial regulators to formulate crypto laws similar to the ones that currently govern traditional finance organisations.
Mandating KYC requirements and ensuring that crypto firms inform authorities about suspicious transactions are some laws that could be enforced on the crypto sector at large among other rules. “Some entities lack the basic accounting, corporate governance, compliance. and control functions that are a prerequisite to participating in TradeFi. Some intermediaries that bridge TradeFi and crypto could be brought under regulation,” the BIS post further added.
The European Union (EU) has already approved the long-awaited MiCA legislation that would work uniformly across all of its member nations in terms of crypto laws.
India is also working with other member nations of the G20 group to formulate crypto laws that would work on an international level. Japan and Germany have joined India in calling for global rules around crypto.
- BIS Proposes These Three Crypto Rules for Immediate Consideration
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