Global Crypto Regulation Challenges and Recommendations
- Globally, countries have opted for different approaches in dealing with the contentious issue of cryptocurrencies.
- Some countries have brought in stringent regulatory frameworks, while others have opted for outright bans.
- Considering the borderless nature of cryptocurrencies, Finance Minister of India called for global collaboration for effective regulations.
How has India dealt with cryptocurrencies?
- In 2018, the RBI prohibited Indian banks from dealing with or facilitating cryptocurrency transactions.
- In 2020, the Supreme Court struck down the prohibitions as they were violative of freedom to carry on trade guaranteed by Article 19(1)(g) of the Constitution.
- In the Union budget 2022-23, a 30% tax was proposed on income from the transfer of digital assets, along with a 1% TDS (tax deduction at source) on such transactions.
Key Considerations for Regulating Crypto-Assets for Financial Stability
- Comprehensive Policy and Regulatory Response: It is needed to tackle the risks that crypto-assets pose to financial stability.
- Challenges of Banning Cryptocurrencies: The decision to ban cryptocurrencies is not an easy option, as it is difficult to enforce because a ban in one jurisdiction could simply lead to crypto activity moving to other friendlier jurisdictions.
- Such an approach may end up pushing cryptocurrency transactions outside a country’s area of scrutiny, risking the financial integrity of the country.
- Benefits of Regulation and Supervision: Regulation and supervision of licenced or registered crypto-asset issuers and service providers could help plug the information gaps, making it easier to monitor cross-border activities.
- Implementation of FATF Standards: There need to implement the FATF anti-money laundering and counter-terrorist financing standards on cryptocurrencies and service providers.
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FATF anti-money laundering and counter-terrorist financing standards:
- The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction.
- The FATF Recommendations, set an international standard, which countries should implement through measures adapted to their particular circumstances.
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Crypto assets have been in existence for more than a decade and have displayed significant volatility. Alongside their volatility, crypto-asset activities have also grown in complexity. Considering the borderless nature of cryptocurrencies Banning or regulating it can be effective only after significant international collaboration on the evaluation of the risks and benefits.
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