Global regulators could agree on crypto in 2022

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Benoît Coeuré, head of the innovation hub (BIS) at the Bank for International Settlements, suggested financial regulators should agree on a global framework for crypto next year after the rapid growth of decentralized finance , according to the Financial Times.

Conversations about high-level global cryptocurrency and decentralized finance principles have intensified in recent months, said Benedict. The BIS acts as a bank for central banks and helps them achieve monetary and financial stability. It also offers central banks and financial supervisors a forum where they can exchange information and decide on joint actions. Thus, the BIS could be used as a platform to agree on common guidelines.

Benoît, who could soon leave the BIS to switch to the antitrust regulator in France, stressed that regulators could no longer ignore decentralized finance, or DeFi, because it “opens new avenues … for interconnection with traditional finance which creates potentially new forms of systemic risk. “The combination of DeFi and stablecoins, used as a settlement instrument on DeFi platforms, has the potential to compete with traditional finance and” this creates compelling reason to start a discussion on the global principles of debt regulation. cryptography “.

These remarks are aligned with the BIS quarterly review published on December 6, in which the BIS outlined the vulnerabilities and risks of DeFi. The BIS has suggested that if DeFi becomes mainstream, it could undermine financial stability due to high leverage, liquidity mismatch, built-in interconnection, and lack of buffers such as banks. One of the most interesting points was what the authors of the article called ‘the illusion of decentralization’, which means that although DeFi aims to provide financial services without intermediaries, its need for governance makes it inevitable. a certain level of centralization.

The BIS is not suggesting that DeFi should be banned or restricted, but it does say that to be widely used as a form of financial intermediation, DeFi “will need to be properly regulated” and that “centralized governance is needed to make strategic and decisions operational.

See also: Official Treasury Congress pushes for creation of uniform crypto framework

Regulation of crypto assets may be the way forward, and countries like the US, Europe, UK and Australia are already working on new rules that could arrive in 2022. However, there is more likely there is a regulatory patch in each country than a common global framework.

On the one hand, BIS’s suggestions seem to focus almost exclusively on DeFi, and stablecoins to some extent, but regulators around the world may be prepared to look at the entire crypto ecosystem at once, this which makes coordination more difficult. On the other hand, international organizations need years to come up with agreements or guidelines that are generally not binding on their signatories and, as Benedict suggests, the need for rules may require a faster response from the government. from governments. Finally, a number of technical and political considerations, such as monetary sovereignty, set the bar very high to agree on a common framework which effectively brings any significant result.

Benedict’s view is that a crypto framework could include category agreements for different activities and decide whether a stablecoin is electronic money, a money market fund, or a security. It could also include guidance so that “service providers in these ecosystems and platforms are regulated according to the service they provide”.

While it is good to have these possible guidelines and a common framework, they may be insufficient, too late – most of the world’s major economies are already working on extensive sets of regulations that are likely to be legally binding. . In addition, this new technology already raises new legal questions in terms of privacy, data sharing and even applicable jurisdiction which in most cases will require answers at the national level. Finally, many central banks and politicians are wary of the role that digital currency could play, not only in a specific economy, but on a global scale. So countries may not be willing to share all the information they may have until they truly understand the impact it might have on their finances.

See also: Chairman’s Working Group: Stablecoin Risk Mandates Legislation

Nevertheless, cooperation and common agreements on certain issues such as money laundering, illicit activities and certain kinds of consumer protection can be agreed between central banks.

In summary, BIS studies and remarks point to a growing need for regulation in the crypto space, as the risks to financial stability may be too great for regulators to ignore. However, a global crypto framework in 2022 seems a bit of a stretch, given the complexity of the topic and the national interests that each country would likely want to defend.

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