Topic B: Cryptocurrency Regulation
Its Impact on Global Financial Stability
Background
Cryptocurrencies and crypto-assets have grown in scale and linkage to the traditional financial system. They pose questions for monetary sovereignty, investor and consumer protection, anti–money laundering (AML), financial stability, and cross-border coordination. Divergent national approaches can create arbitrage and spillovers, so international standards and information-sharing are central to the debate.
Key Issues for Debate
- Definition and scope: How to define crypto-assets (payment vs. investment vs. utility); stablecoins; DeFi.
- Financial stability: Interconnection with banks and markets; contagion; systemic importance of large players and stablecoins.
- AML/CFT: Travel Rule, KYC for exchanges and wallets; enforcement across borders.
- Consumer and investor protection: Disclosure, fraud, custody, and insolvency of platforms.
- Monetary policy and sovereignty: Private stablecoins and CBDCs; capital flows and exchange rates.
- Level playing field: Same activity, same risk, same regulation (e.g. crypto vs. traditional finance).
- Innovation vs. risk: Sandboxes, proportionality for small players, avoiding regulatory arbitrage.
Key Statistics & Facts
~$2.5T+Approx. crypto market cap (volatile)
MiCAEU Markets in Crypto-Assets regulation (2023)
FATFVirtual Assets Recommendations (updated for VASPs)
FSB / IMFGlobal standard-setting on stability and regulation
- FATF: Virtual Asset Service Providers (VASPs) must comply with AML/CFT (Travel Rule, etc.).
- FSB and IMF have issued recommendations on global regulation, stablecoins, and financial stability.
- Jurisdictions range from bans to full licensing (e.g. MiCA in EU, state-level in US).
Relevant International Frameworks
- FATF: Recommendations on virtual assets and VASPs; Travel Rule for transfers.
- FSB: High-level recommendations on stablecoins and global stablecoin arrangements.
- IMF: Policy and capacity-building; macro-financial risks; CBDCs.
- IOSCO / BIS: Standards applicable to crypto that functions like securities or payment.
- G20: Endorsement of FSB roadmap and “same activity, same risk” principle.
Sample Resolution Clauses (Topic B)
Preambulatory
Recognizing that crypto-assets and related services may pose risks to financial stability, investor protection, and the integrity of the international financial system,Reaffirming the importance of implementing the Financial Action Task Force standards for virtual assets and Virtual Asset Service Providers,
Emphasizing the need for consistent global approaches to reduce regulatory arbitrage and cross-border spillovers,
Operative
1. Calls upon Member States to ensure that crypto-asset service providers within their jurisdiction are subject to proportionate regulation and supervision, including for anti–money laundering and countering the financing of terrorism, in line with FATF recommendations;2. Encourages States to cooperate through competent authorities and international bodies to share information on risks and enforcement related to cross-border crypto-asset activities;
3. Recommends that regulation of crypto-assets and stablecoins be aligned with the “same activity, same risk, same regulation” principle where they perform functions similar to traditional financial instruments or payment systems;
Short Talking Points
- “Regulation should target risks, not technology—same activity, same risk.”
- “Global coordination is essential to prevent regulatory arbitrage and protect financial stability.”
- “AML and Travel Rule implementation for VASPs must be consistent across jurisdictions.”
- “Consumer protection and market integrity are non-negotiable, without stifling responsible innovation.”
Typical Bloc Positions (for negotiation)
- Major financial centres: Often favour clear rules (e.g. MiCA-style) and international alignment; stress stability and AML.
- Innovation-focused: Push for sandboxes, proportionality, and avoiding over-regulation that drives activity offshore.
- Developing / emerging markets: Concern about capital flow volatility, dollarization via stablecoins, and capacity to enforce; may support stronger global standards and technical assistance.