FT Nea 2019003

FINTECH NOTE
Regulation of Crypto Assets
Prepared by Cristina Cuervo, Anastasiia Morozova,

and Nobuyasu Sugimoto
December 2019
I N T E R N A T I O N A L M O N E T A R Y F U N D
©2019 International Monetary Fund
Cover Design: IMF Multimedia Services
Composition: The Grauel Group
Names: Cuervo, Cristina, author. | Morozova, Anastasiia, author. | Sugimoto, Nobuyasu,

author. | International Monetary Fund, publisher.
Title: Regulation of crypto assets / Prepared by Cristina Cuervo, Anastasiia Morozova, and
Nobuyasu Sugimoto.
Other titles: FinTech notes (International Monetary Fund).
Description: Washington, DC : International Monetary Fund, 2019. | FinTech notes. | De-
cember 2019. | Includes bibliographical references.
Identifiers: ISBN 9781513520315 (paper)
Subjects: LCSH: Cryptocurrencies. | Electronic funds transfers. | Financial services industry.
Classification: LCC HG1710.C84 2019
DISCLAIMER: Fintech Notes offer practical advice from IMF staff members to pol-
icymakers on important issues. The views expressed in Fintech Notes are those of the
author(s) and do not necessarily represent the views of the IMF, its Executive Board, or
IMF management.
Publication orders may be placed online, by fax, or through the mail:

International Monetary Fund, Publication Services
PO Box 92780, Washington, DC 20090, U.S.A.
Tel.: (202) 623-7430 Fax: (202) 623-7201
Email: publications@imf.org
www.imf bookstore.org
CONTENTS
Abbreviations v
Introduction 1
The Risks 3
Regulation 7
Handle with Care 17
Appendix I. Illustrative Examples of Crypto-Assets–Related Risks 19
International Monetary Fund | December 2019 iii

ABBREVIATIONS
AMF Autorité des Marchés Financiers of France

AML/CFT anti–money laundering/combating the financing of terrorism
BCBS Basel Committee on Banking Supervision
BFA Bali Fintech Agenda
CPMI Committee on Payments and Market Infrastructures
DLT distributed ledger technology
FATF Financial Action Task Force
FINMA Swiss Financial Market Supervisory Authority
FSB Financial Stability Board
ICO initial coin offering
IOSCO International Organization of Securities Commissions
MTF multilateral trading systems
PFMI principles for financial market infrastructures
SAFU secure asset fund for users
VFAA Virtual Financial Asset Act
International Monetary Fund | December 2019 v

REGULATION OF CRYPTO ASSETS
Introduction1 cymakers and the international community into 12

The rapid growth of crypto assets has raised ques- elements, including enabling technologies, ensuring
tions about the appropriate regulatory perimeter and financial sector resilience, addressing risks, and pro-
the ability of the existing regulatory architecture to moting international cooperation. This note aims to
adapt to changing conditions (Figure 1). Effective provide a discussion into regulatory and supervisory
regulation of financial services promotes long-term considerations in relation to a specific area of fintech—
economic stability and minimizes the social costs and crypto assets—going deeper into the monitoring,
negative externalities from financial instability. The regulation, and supervision elements of the BFA.3
same underlying principles for regulation should apply While the international regulatory community is
to nascent products and services based on innovative actively engaged in discussions around crypto assets,
technologies, notwithstanding design challenges. approaches are varied and often only partially address
The purpose of this note is to identify selected potential risks. The fast-moving pace of fintech
elements of regulation and supervision that author- challenges authorities and standard setters to develop
ities should consider when deciding on a regulatory sound regulatory and supervisory approaches to con-
framework for crypto assets. The note is structured in tain the risks while supporting healthy innovation. This
two main sections: the first briefly summarizes some of note does not aim to establish standards or to provide
the most relevant risks related to crypto assets, while prescriptive solutions, but rather to assist policymakers
the second concentrates on how regulatory frameworks in various jurisdictions in framing the discussion and
could address these risks. To illustrate the analysis, issues relative to the regulation of crypto assets. The
some country examples are compiled in the Appendix. underlying principle is that regulation and supervision
The definition of a crypto asset is far from glob- are needed when there is sufficient concern that there
ally uniform and we have therefore opted for a broad are potential market failures or externalities that bring
approach. In this note, the term crypto asset denotes risks to financial stability; warrant the need to pro-
digital assets that use cryptography for security and tect financial markets, consumers, and investors from
are coins or tokens of distributed ledgers and/or abuse; or lead to excessive regulatory arbitrage. The
blockchains, including asset-backed tokens. We also need and features of regulation will therefore depend
recognize the distinction between “coins” and “tokens” on the characteristics of crypto assets and related prod-
but may use the two terms interchangeably.2 ucts and specific country circumstances.
The IMF/World Bank Bali Fintech Agenda (BFA) This note therefore does not aim to address compre-
proposes a framework of high-level issues that coun- hensively the regulatory implications of crypto assets
tries should consider in their policy discussions. The but focuses on selected aspects of financial regula-
Agenda brings together key considerations for poli- tion. It addresses some of the most relevant financial
regulation issues related to a wide range of crypto-asset
features existing today—but not all. For instance, par-
1This note was prepared by Cristina Cuervo, Anastasiia Moro-
ticular features of stablecoins or other newly developed
zova, and Nobuyasu Sugimoto, with inputs from Tamas Gaidosch,
crypto assets may have regulatory implications that are
Eija Holttinen, David Jutrsa, Richard Stobo and Chris Wilson (all
MCM). While detailed discussion of anti–money laundering/com- not specifically covered here. In addition, the note does
bating the financing of terrorism issues is outside the scope of this not cover central bank digital currencies or payment
note, Kristel Poh, Nadine Schwarz, and Jess Cheng (LEG) provided
helpful guidance on the topic.
2Coins refer to bitcoin and alt-coins, which were issued originally 3The corresponding elements in the BFA are V—Monitor
with a main purpose to serve as “currency,” that is, with money and Developments Closely to Deepen Understanding of Evolving
payments-related functions. Tokens have more functions than coins, Financial Systems and VI—Adapt Regulatory Framework and
for example, permitting the coin holders to participate in the service Supervisory Practices for Orderly Development and Stability of the
provided or the returns offered by the token issuer. Financial System.
International Monetary Fund | December 2019 1

FINTECH NOTES
Figure 1. The Rapid Growth of Crypto Assets

Market capitalization over time of top three crypto assets
350 Billion
300 Billion Bitcoin Ethereum Ripple
250 Billion
200 Billion
150 Billion
100 Billion
50 Billion
Billion
Apr. 2013
Sep. 13
Feb. 14
July 14
Dec. 14
May 15
Oct. 15
Mar. 16
Aug. 16
Jan. 17
Jun. 17
Nov. 17
Apr. 18
Sep. 18
Feb. 19
July 19
Sources: CoinMarketCap and IMF staff calculations.
system implications related to crypto assets—although Industry and technological developments may accel-
these also present challenges to regulators. Moreover, erate specific activities (see Box 2), potentially shifting
data and privacy issues are not covered in this note, the focus of authorities from some risks to others. As
although data use and its regulation could have a sig- technologies and products evolve, there will be areas
nificant impact on the network effect of crypto-related where further adaption will be needed, but in all cases,
services and thus growth of a crypto-asset ecosystem. this note takes the approach that similar activities and
This paper also aims to cover more imminent issues to risks should be regulated in the same way to prevent
the regulatory and supervisory community and thus the development of excessive risk taking, contagion,
does not discuss the challenges that could arise in the financial instability, and material regulatory arbitrage.
long term. For example, in June 2019, the Financial Finally, given the cross-border and cross-sectoral
Stability Board (FSB) published a report4 that consid- nature of the activities, closer international cooperation
ers the implications of decentralized financial technol- and coordination is needed to address regulatory gaps
ogies and concludes that full decentralization seems and prevent potential regulatory arbitrage. Activities
unlikely to achieve an economically significant scale related to crypto assets already are and will continue to
in the near future. Therefore, in this note we describe be more cross-border and cross-sectoral—by design—
regulation with the assumption that some intermedi- than traditional financial activities. This requires closer
aries will exist for the time being to provide financial international cooperation and coordination5 to address
services to end users. regulatory gaps. Consistent regulatory approaches can
In fact, the risks discussed here are only a starting prevent the potential risk of a race to the bottom by
point for regulatory discussions. The evolving nature regulators and policymakers and address regulatory
of crypto assets will require a continuous assessment arbitrage by financial entities.
of risks and re-evaluation of regulatory approaches.
4Financial Stability Board (FSB). 2019. “Decentralised financial
technologies: Report on financial stability, regulatory and governance

implications.” FSB Policy Paper, Basel, Switzerland. https://www.fsb 5While data, privacy, and tax issues are outside the scope of
.org/w-content/uploads/P060619.pdf. IMF staff actively contributed this note, it is quite important to address those issues in regard to
to the analysis and drafting of the report. cross-border and cross-agency cooperation.
2 International Monetary Fund | December 2019

Figure 2. Market Structure of Crypto Assets

The market structure of crypto assets is simplified and illustrated in the figure. We highlight the risks we
address in this paper and illustrate the part of the market chain they relate to in the context of this note.
Operational, cyber,
Issuer Primary market commingling risks
Market, credit, default,
Financial issues an ICO mining activity market integrity, mis-
institution/ selling and fraud risks
reserve Liquidity risk
Sells ICO coins

*stablecoins
only
Crypto trading platform
Sells a coin
$ Miner
Secondary market
Ledger of the crypto-

trading platform Customers’ wallets
Net results are
$ Customer 1
sent to
Blockchain transaction
is validated
ICO and
COIN Customer 2 recorded
on the
B Customer 3
Blockchain
Source: IMF staff.
The Risks Investor Risks

Crypto-investors and users,6
as well as crypto-asset Crypto investors may be exposed to a significantly
service providers, are exposed to high risks. The inher- higher risk of loss than those investing in traditional
ently high volatility of major crypto assets, together financial assets. Some of the main risks that investors
with technology features and anonymity, create several are facing are illustrated in Figure 2.
significant risks not only to investors but also to service •• Operational and cyber risk of wallet providers
providers. Some of the risks incurred by investors are, and crypto-trading platforms. In the last few
for instance, operational and cyber risk of wallet pro- years, several crypto-trading platforms and wallet
viders and the crypto trading platform; market, credit, providers, including large and well-known firms,
and default risk of issuers; comingling risk of assets; have been hacked and the client coins or tokens
liquidity risk of both issuers and service providers; have been stolen (Figure 3). Some of the largest
market manipulation; misselling; and fraud. Crypto loss incidents involved several hundred million US
assets are also vulnerable to misuse for money launder- dollars per incident, leaving providers bankrupt and
ing and terrorist financing. In addition, crypto assets investors at a loss. Even in cases where compen-
may generate contagion and business model risks, sation was ultimately fully paid out within several
which may potentially become systemic and warrant months, investors were not able to use their hacked
a prudential response. This section briefly describes coins or tokens over extended periods of time. Some
these risks. The subsequent sections discuss regulatory exchanges are trying to mitigate this risk by con-
challenges and options to address them. tracting cyber insurance coverage or by creating sep-
arate compensation funds, but there is typically no
6In this note, we will more recurrently refer to “investors,” but the
term should be understood to also include end users (both wholesale

and retail) of crypto assets, where applicable.

FINTECH NOTES
Figure 3. Funds Stolen Via Hacks and Cyber Incidents before Major Wallets and Crypto-
Trading Platforms
$450 Million
$400 Million
$350 Million
$300 Million
$250 Million
$200 Million
$150 Million
$100 Million
$50 Million
$ Million
2011 12 13 14 15 16 17 18 2019
(up to date)
Sources: CoinDesk, Coin Telegraph, and IMF staff calculations.
public or other safety net, such as deposit insurance •• Commingling of assets of service providers. In
or a liquidity facility from central banks.7 the event crypto service providers go bankrupt, their
•• Market, credit, and default risks of coin and clients’ coins and tokens could be comingled with
token issuers. Many crypto assets are highly vola- the service provider’s other assets, unless there is a
tile, and the investors and crypto-trading platforms clear regulatory framework and robust arrangements
are exposed to material market risk. Even so-called to make the client assets bankruptcy-remote. If the
stablecoins8 are potentially subject to the credit and service provider is a regulated bank, crypto-asset
default risk of the issuer, as the collateral (such as holdings could make the resolution of the bank
bank deposits) may not be segregated from other complicated, which can, in turn, have wider finan-
assets of the issuer and thus both could be commin- cial stability implications.
gled if the issuer files for bankruptcy. Deterioration •• Liquidity risk of issuers and service providers.
of the issuer’s credit would be reflected into the price Issuers may allow redemption (typically very short
of the issuer’s coins and tokens. Issuers of stablecoins term, such as daily) by investors and users into other
also tend to be related parties of crypto-trading currencies or assets. In addition, even if there is no
platforms. Therefore, there are additional potential legal obligation for issuers to respond to redemption
conflicts of interest between stablecoin issuers and requests, investors may expect that they would be
crypto-trading platform operators (Figure 4). For able to exchange the coins and tokens with service
example, stablecoin issuers may rehypothecate their providers (such as crypto-trading platforms) fre-
collateral to the related trading platform operators quently without material redemption cost. There is
under favorable conditions. a strong incentive for the issuer and service provider
to meet such redemption requests from investors, to
7Coinbase has insurance coverage of all client positions held in its avoid reputation failure of the coin or token. Such
hot wallet by a large reinsurer. If Coinbase were to suffer a breach pressure could trigger fire sales of the collateral assets
of its online storage, the insurance policy would cover any customer (such as bonds and bank deposits) by the issuers
funds lost as a result. Binance established a secure asset fund for
users (SAFU) and is reported to allocate 10 percent of all trading and service providers, which might have a negative
fees into it. The SAFU is intended to offer protection to users. impact on the broader financial sector, such as banks
8Stablecoins are designed to minimize price volatility versus a fiat
and bond markets.
currency, currency baskets, commodities, or tangible assets. Most
stablecoins are collateralized by the assets they are designed to track.
•• Market integrity risk. Many crypto assets are not
Others use algorithms to stabilize supply and demand. backed by tangible assets or other securities (such as

Figure 4. A Comparison of Volatility: Crypto Assets versus Traditional Financial Instruments

200
Bitcoin 10 day volatility Gold 10 day volatility
180
IMF SDR 10 day volatility EM FX 10 day volatility
S&P 500 Index
160
140
120
Percent
100
80
60
40
20
0
Jan. 2018 Mar. 18 May 18 July 18 Sep. 2018 Nov. 18 Jan. 19 Mar. 19 May 19 July 19
Source: Bloomberg data.
Bitcoin and Ether), and thus have no clear intrin- vation, make crypto assets a difficult-to-decipher
sic value (differently from stablecoins). The price product for investors. There is, therefore, increased
discovery function of the market is inevitably weak risk of these products being created for fraudu-
and therefore such assets are at high risk of market lent purposes.
manipulation.9 Anecdotal evidence suggests that
some large crypto-trading platforms allow investors
to conduct wash trades.10 Also, illiquidity could Anti–Money Laundering/Combating the Financing of
make markets vulnerable to other forms of market Terrorism Risk
manipulation, such as “whale” trades11. Even in Crypto assets potentially also create risks of misuse
cases where assets may be subject to regulation and for money laundering and terrorist financing.12 This
surveillance by relevant regulated exchanges (because is due, in part, to the different levels of anonymity or
they are considered to fall under the securities super- “pseudo-anonymity” that crypto assets offer that make
visory regime, for example), enforcement of market regulatory action challenging: while the authorities
manipulation is challenging due to the often anony- may be able to trace transactions on the blockchain,
mous, cross-border, and decentralized nature of the depending on the level of anonymity that they offer,
transactions. This could pose serious risks should they may not always be able to establish who the
asset tokenization become more commonly used and two parties to a transaction are, and, ultimately, who
expand to traditional assets in the future. owns the crypto assets. In addition, the fact that they
•• Risk of misselling and fraud in the offer of are “internet-based” means that users have the ability
crypto assets. The lack of comparable information to transact globally more rapidly. The use of decen-
about the products offered, together with intrinsic tralized technologies also makes it possible for users
technological complexities and hype around inno- to transact in crypto assets without going through
financial intermediaries (and by extension, bypassing
9Stablecoin users and investors may be less exposed to market
anti–money laundering/combating the financing of
integrity risk.
10A wash trade is a form of market manipulation in which an
investor simultaneously sells and buys themselves the same financial 12While a detailed discussion of AML/CFT issues is beyond the
asset to inflate the volume traded of the asset, thus creating mislead- scope of this note, it is important to mention that there have been
ing information and activity in the marketplace. tangible developments in international standard setting by the Finan-
11The term “whale trade” often refers to the trades where a single cial Action Task Force as described briefly in Section IV (Regulation)
trader or entity has a significant position in a particular market and of this paper. A dedicated Fintech Note on modernizing legal frame-
its trades have a significant impact on the market. works including these issues is planned for publication in due course.

FINTECH NOTES
Box 1. Crypto-Trading Platforms

Crypto-trading platforms typically execute and pean Union multilateral trading systems (MTFs),
receive orders from investors for the “exchange” or because MTF operators cannot trade on their own
secondary market sale or purchase of crypto assets account in the trading platform they operate.
against fiat currency or other crypto assets. Currently, Crypto-trading platforms may also perform other
crypto-trading platforms are providing brokerage functions, including custody (similar to wallet pro-
services to retail investors in a manner similar to that viders) and margin lending and provision of liquidity.
of stock brokerage firms. However, unlike many stock Many crypto-trading platforms are providing margin
brokerage firms, which can just pass the client orders trading and financing platforms to investors (for
to a stock exchange, crypto-trading platforms gener- example, Coincheck, Bitfinex). In some cases, this may
ally need to provide liquidity to support the trans- support considerable leverage, although due to the lack
actions among their client investors (by selling their of disclosure it is hard to analyze the size, volume, and
own inventories to match purchase orders from their associated risks of leveraged trading. Trading platforms
clients). This is similar, for example, to the way US also play other important roles, such as underwriters
Alternative Trading Systems and Japanese Proprietary in initial coin offerings, which may raise the risk of
Trading Systems work. Such crypto-trading platforms market manipulation and insider trading.
therefore do not work in the same manner as Euro-
terrorism [AML/CFT] obligations). These features, and Prudential and Systemic Risk
the fact that, crypto assets currently fall under different Crypto-asset providers and issuers are increasingly
regulatory frameworks globally, resulting in uneven or engaging with traditional financial institutions, as
no monitoring and information sharing across jurisdic- well as modifying the competitive landscape, generat-
tions, make such assets particularly attractive to indi- ing prudential risks that warrant a sensible response.
viduals who wish to evade existing controls to commit Crypto-asset providers (crypto-trading platforms and
crimes (such as fraud, cyber-crime, and tax evasion, to brokers) are increasingly engaging with traditional
launder illegal proceeds or even to fund terrorism). financial institutions (through derivatives, providing
Anonymity enhanced features further complicate crypto linked products and cyber insurance). These
authorities’ ability to track criminal use of crypto exposures could trigger contagion risks to financial
assets. The emergence of more sophisticated mixers institutions if the size of the exposures continues
and tumblers13 and anonymity-enhanced crypto assets to grow in the future or if the risk is not managed
(such as Monero, Z-cash) aggravate the risks further by properly. If stablecoins become widely used, existing
obfuscating the source of funds and providing layering financial institutions would engage with crypto-asset
services—which can potentially frustrate operational business more actively. Some might issue their own
authorities’ ability to detect, investigate, and prosecute stablecoins (such as JPM Coin) to compete with
offenses. Furthermore, new “layers” of application crypto-asset service providers. In addition, crypto assets
protocols (for example, a lightning network, a second and distributed ledger technology (DLT) applica-
layer technology using micropayment channels aimed tions might affect the industry landscape and increase
at mitigating the scaling problem of the original Bit- competition in the future, which may, in turn, affect
coin) and related “netting” arrangements allow offline the soundness of the existing financial sector. Digitali-
financial exchanges and further block the visibility of zation would have a much wider and stronger impact
transactions. on business models of the existing financial sector,
although this is beyond the scope of this note.
While initial assessments by standard setters indi-
13Mixers and tumblers are the services which mix coins from
cated crypto assets did not pose material systemic risk,
different transactions and provide new coins to clients. The services technological and market developments are moving
can be used to break the connection between a sending and receiving
address and obscure the trail to the original source while simultane- fast, and this situation may be changing. In October
ously improving the anonymity of transactions. 2018, the FSB released a report which concluded that

crypto assets did not pose a material risk to global assets, with the Financial Action Task Force (FATF)
financial stability at that time. The report noted that updating its standards to cover virtual assets and virtual
risks would arise if crypto assets became widely used asset service providers in 2018. The rapid expansion of
in payments and settlement (see Box 2). The global ICO activities14 urged financial sector regulators—and,
fintech survey conducted by the IMF and the World prominently, securities regulators—to take a position
Bank in early 2019 also found that most jurisdictions on crypto assets, since it became apparent that many
agree that crypto assets present risks to investors but of those assets may meet the definition of a security
are not yet a threat to financial stability. The Basel and therefore should be bound by securities legislation.
Committee on Banking Supervision (BCBS) released a Many securities regulators then initiated enforcement
statement covering crypto assets in March 2019, which investigations in relation to crypto-asset activities,
highlighted that continued growth of crypto assets has which presumably assisted in defining their official
the potential to raise financial stability concerns and position. In the meantime, various standard-setting
increase risks faced by banks. Significant data gaps in bodies have discussed potential approaches within their
information on the extent of leverage in crypto-asset mandate, although very few standards have effec-
markets, and on direct and indirect exposures of tively been set.
financial institutions pose additional challenges to the
assessment and monitoring of systemic risk.
Further institutionalization of crypto-related activ- What Has Been Done So Far
ities could increase transmission channels between Many financial sector regulators have already taken
crypto activities and traditional financial institutions. a position in relation to crypto assets, although the
Current transmission channels between the crypto approach and coverage of the topic is varied. In the
space and traditional financial institutions are restricted absence of international standards or guidance (except
to small direct exposures and limited indirect expo- in the area of AML/CFT), jurisdictions have taken
sures. However, a number of fintech startups and different approaches and views, often related to the
even major financial entities (such as Fidelity Invest- policy stance regarding innovation, the mandates
ments) are actively developing solutions to improve of their regulatory bodies, and the pace and type of
the reliability and safety of private key management of crypto-activities in the country.
crypto assets. If those services become available with Warnings. Most jurisdictions have issued public
competitive pricing, a possible scenario could include statements warning about the risks of crypto assets
much wider use of crypto assets by large institutional (generally referring to investor protection and financial
investors (such as asset managers, insurance compa- integrity risks), with many also highlighting that some
nies, and pension funds). Wider use of crypto-based crypto assets could resemble securities and would trig-
payment systems (such as for cross-border payments) ger a securities regulatory approach (for example, the
could also materially increase the number of trans- US SEC and the UK FCA).15
mission channels between crypto assets and financial Prohibition. Several jurisdictions have decided to
institutions in the future. ban any crypto-asset activity, although it is unclear
if enforcement is always feasible and cross-border
activities are covered. Some of the jurisdictions that
Regulation chose this approach are Algeria, Bahrain, Bangladesh,
Although central banks and anti–money laundering Bolivia, China, Colombia, the Dominican Republic
authorities initially took the lead in setting a regulatory (for regulated financial institutions), Indonesia, Iran,
stance for crypto assets, the emergence of initial coin Iraq, Morocco, Nepal, Kuwait, Kyrgyzstan, Macao
offerings (ICOs) turned the focus to securities regula- SAR, Maldives, and Qatar.
tors and standard-setting bodies have approached the
issue within their mandates. Central banks were mostly 14ICO activity has since dramatically decreased, both in terms of
the first to react to the emergence of crypto assets— number of projects and money raised, as pointed out by numerous
Bitcoin and other cryptocurrencies, in particular— crypto-related sources. As recently documented by the cryptocur-
rency analytics firm Long Hash, the total money raised for 2019 is
issuing statements and warnings about their potential
expected to be around $338 million, or 95 percent less than in 2018.
risks. Many AML/CFT authorities developed or 15At least 82 countries have issued warnings on digital assets and
adapted regulation to apply to certain types of crypto at least 20 countries have issued warnings on ICOs, specifically.

FINTECH NOTES
Box 2. A Special Mention of Recent Crypto Developments: Facebook and Libra

In June 2019, the Libra Association announced a It is not clear how reserve management would be
digital currency project, called Libra, led by Facebook regulated or supervised. The association is established
and 27 other members. Members of the Libra Associ- in Geneva, Switzerland, and reported to be subject
ation are major payment (Visa, Mastercard, and Pay- to Swiss Financial Market Supervisory Authority
Pal), technology (eBay and Uber), telecom (Vodafone), (FINMA) regulation and supervision. In September
and blockchain (Coinbase and Xapo) companies. In 2019, FINMA released a supplement to the initial
October 2019, a total of 22 members formally signed coin offering guidelines, outlining how to treat stable-
onto the Libra Association Charter, formalized the coins, and provided the following indications of how
Libra Association Council, elected the Board of Direc- Libra would be potentially regulated and supervised:
tors, and appointed members of the Libra Association i) the project would require a payment system license
Executive Team. The service’s target launch is set for from FINMA and requirements that are in line with
the first half of 2020, when it hopes to have approx- the Principles for Financial Market Infrastructures
imately 100 members. Facebook is the lead entity (PFMI); ii) the services would clearly go beyond those
in the Libra project and it is relevant to note that of a pure payment system and therefore be subject
there is no banking group among the initial founding to additional requirements, such as capital allocation
members. Each member is to have an equal voting (for credit, market, and operational risks), liquidity,
right at each important decision, which would be and risk concentration, as well as the management of
taken by supermajority among the governance token the reserve; iii) bank-like regulatory requirements for
holders. The association plans to issue two types of bank-like risks; and iv) a condition providing that the
coin/tokens, one for the users (payment/user tokens) returns and risks associated with reserve management
and one for the governance function (investor tokens). are borne entirely by the Libra Association and not—
The governance or investor tokens would be subject to as in the case of a fund provider—by stablecoin hold-
a minimum investment threshold of $10 million. ers, as a necessary condition for being granted a license
Libra, the digital currency, would be designed to be as a payment system. Since stablecoin holders share
stable but not pegged to any fiat currency. Libra would both downside risk and currency risk, it is not clear if
be backed by a reserve of real assets. The reserve will and how the Libra Association, especially its reserve
be held by a geographically distributed network of management, would be regulated and supervised.
custodians with an investment-grade credit rating to Conflicts of interest between holders of governance
limit counterparty risk. The reserve will be made up of tokens and user tokens would need to be addressed
a collection of low-volatility assets—bank deposits and carefully. Since governance token holders are entitled
government securities in currencies from stable and to the return on the reserve investment, they may wish
reputable central banks. The initial set of currencies to increase the return to offset operating costs. There-
are reported to be four major hard currencies (British fore, there would be some incentives for them to push
pounds, euros, US dollars, and yen). The association yield-enhancing activities, such as securities lending.
plans to rely on short-dated securities issued by stable On the other side, the user token holders would pre-
governments that are traded in liquid markets to man- sumably want to minimize volatility and thus would
age the reserve fund. The association may occasionally like to see the reserve invested conservatively and in a
change the composition of the basket, which would well-diversified manner. While the initial proposal of
require a supermajority vote by the association’s coun- the reserve management policy clearly states that “the
cil.1 Users of Libra would not receive returns from the goal will always be value preservation,” each member
reserve. The revenue would be used to promote the would have different risk assessments and appetites.
coins and as a return to governance token investors. Depending on the composition of the members, the
It is important that this and other relevant features of association could be under pressure to soften this
Libra (for instance the limits of redemption through interpretation of the policy, which may result in a
authorized entities, see below) should be appropriately gradual shift toward riskier asset investments in the
and clearly disclosed to the public. long term.2 Therefore, it might be necessary to address
the conflicts of interest between the two types of inves-
1The council is the Libra Association’s governing body. Ini-
tially, this group consists of the founding members. All decisions 2The G7 Working Group on Stablecoins also mentioned this
will be brought to the council and major policy or technical issue in its report “Investigating the impact of global stablecoins,”
decisions require the consent of two-thirds of the members. issued in October 2019.

Box 2. A Special Mention of Recent Crypto Developments: Facebook and Libra (continued)
tors by imposing disclosure requirements and other jurisdictions don’t impose prudential requirements
safeguards (such as a limitation of changes—even with (including liquidity requirements) on crypto-trading
supermajority voting—among the members) to ensure platforms. It would be useful for the association to
the protection of user token holders’ interests. have additional reserves and to be able to use such
The ecosystem would rely heavily on crypto-trading reserves for liquidity provisions to authorized resellers
platforms for redemption, and that could expose it to in stressed situations.
liquidity and foreign exchange rate risk. Redemption Facebook created a subsidiary, Calibra, to serve as
of the user tokens would be limited to the entities the single wallet provider of Libra. It would control
authorized by the association to transact large amounts all interfaces with the retail users. Calibra would be
of fiat and Libra in and out of the reserve. While subject to anti–money laundering/combating the
Facebook seems to be open to banking groups and financing of terrorism (AML/CFT) regulation and be
reportedly encouraged them to become Libra founding licensed as a payment service provider. Transaction
members, so far only crypto-trading platforms have data will not be shared with Facebook or any third
joined. Therefore, users would have to sell Libra to party without customer consent. However, there are
those entities (crypto-trading platforms) to cash out to cases where data may be shared with authorities to
fiat currencies, which would be subject to certain fees comply with the law, Calibra indicated. However,
(such as foreign exchange conversion and transaction arguably, one of Facebook’s main motivations for the
fees). In the case of a run scenario, crypto-trading Libra project could be access to the usage data. It is
platforms could be subject to liquidity risk if the asso- also uncertain how AML/CFT preventive measures,
ciation cannot meet redemptions from those entities such as customer due diligence, will be carried out.
as quickly as the end users need. Currently, most
Guidance. Many authorities have issued high-level the different activities and service providers related to
guidance on the treatment of crypto assets. To frame crypto assets, including public offerings and secondary
the guidance, some jurisdictions classified the assets market trading. For instance, the regulation issued by
according to their main characteristics and economic the commodity futures trading supervisory agency under
purpose (for example, the Swiss FINMA, MAS, and the Ministry of Trade of Indonesia sets out the minimum
UK FCA). The most common classification, inspired requirements for crypto assets traders, trading platforms
by the Swiss approach, refers to (i) securities assets, (including futures exchanges), clearing houses, and crypto
meaning those that fall within the jurisdiction’s storage providers (custodians). These requirements include
definition of a security; (ii) payment assets, for those registration and licensing, reporting, systems, organization-
intended to be used as a means of payment; and (iii) al structure, governance, certification, security, storage, in-
utility assets, which are intended to provide digital vestor/customer education, transparency, minimum capital,
access to an application or service. Guidance generally and AML/CFT obligations.
focuses on identifying whether existing legislation and Enforcement. Several authorities are using their
regulations apply to any of these types of crypto assets. enforcement and sanction powers to develop or enforce
Other jurisdictions are not explicitly classifying crypto their position on crypto assets and related activities, on
assets but are identifying the characteristics that would a case-by-case basis (for example, US SEC and CFTC).
make them securities and thus fall under existing secu- Standard setters and coordination/monitoring bodies
rities regulations. have also been actively engaged in developing reports
Tailored regulation. Some jurisdictions are creating and guidance regarding crypto-asset risks, although
specific regulatory frameworks for crypto assets (for standards have only been issued by FATF:
example, Malta and Thailand16). These provide more •• IOSCO warned about the risks of crypto-asset offers
details on specific requirements that may apply to in January 2018 and created an ICO network for
16Japan: Amendment of the Payment Services Act and the Finan- Assets Act, 2018; and Thailand: Emergency Decree on the Digital
cial Instruments and Exchange Act, 2019; Malta: Virtual Financial Asset Business B.E. 2561 (C.E. 2018).

FINTECH NOTES
its members to exchange information. It also has and indirect exposures to crypto assets as part of its
a standing fintech network in charge of keeping end of 2018 Basel III monitoring exercise. BCBS
track of fintech developments and identifying policy published a discussion paper related to the prudential
needs. IOSCO’s relevant policy committees will take regulatory treatment of crypto assets in December
up any policy development considered necessary. For 2019.
example, the Committee on Secondary Markets has •• The Committee on Payments and Market Infra-
published a consultative document on crypto-asset structures (CPMI) and IOSCO joint working
platforms (see next bullet).17 group examined the PFMI, discussing whether cur-
•• The FSB issued the report “Decentralised financial rent initiatives using DLT in clearing and settlement
technologies” in June 2019, which considered the pose challenges for application of the PFMI. In
financial stability and regulatory and governance 2018, CPMI issued the two papers: i) cross-border
implications of the use of decentralized financial retail payments and ii) central bank digital curren-
technologies, such as those involving distributed cies. The report on cross-border retail payments
ledgers and online peer-to-peer or user-matching highlighted that alternative clearing and settlement
platforms. The May 2019 report on “work under- arrangements are emerging.20 The CPMI chairman
way to address crypto-asset risks” summarized recent stated that “The emergence and use of cryptocur-
work conducted by international organizations. The rencies across borders signals to central bankers that
reports covered a wide range of issues, including our current payment systems are too expensive and
investor protection, market integrity, anti–money slow. Action is needed to put better arrangements
laundering, bank exposures, and financial stability in place.”21
monitoring. The report concluded with a recom- •• The FATF adopted changes to its recommendations
mendation that the G20 keep the topic of regula- in October 2018, to explicitly clarify that they apply
tory approaches and potential gaps, including the to financial activities involving virtual assets and to
question of whether more coordination is needed, related service providers. In addition, the FATF has
under review. In April 2019, the FSB published since adopted an Interpretative Note to Recommen-
“Crypto-assets regulators directory,” which pro- dation 15 in June 2019. The Interpretive Note sets
vides information on the relevant regulators and out binding measures for effective regulation and
other authorities in FSB jurisdictions and interna- supervision or monitoring of virtual asset service
tional bodies.18 providers. Moreover, In June 2019, the FATF also
•• The BCBS issued a “statement on crypto assets” issued guidance on the application of the risk-based
in March 2019, and a consultative document in approach to virtual assets and virtual asset service
December 2019,19 in which it set out its prudential providers.22
expectations related to banks’ exposures to crypto
assets and related services. The statement highlighted
a number of risks for banks, including liquidity risk; Considerations for the Development of
credit risk; market risk; operational risk (including Regulatory Frameworks
fraud and cyber risks); money laundering and terror- While crypto assets continue to develop and trans-
ist financing risk; and legal and reputation risks. The form, authorities should consider following a proactive
BCBS is currently collecting data on banks’ direct and holistic approach to regulation, stemming from
a comprehensive consideration of risks. Jurisdictions
17https://www.iosco.org/news/pdf/IOSCONEWS485.pdf and
Board of the International Organization of Securities and Commis- 20Bank for International Settlements (BIS). 2018. “Cross-border
sions (IOSCO). 2019. “Issues, Risks and Regulatory Considerations retail payments report on cross-border payments.” Committee on
Relating to Crypto-Asset Trading Platforms.” IOSCO Consultation Payments and Market Infrastructures, February.
Report CR02/2019. IOSCO, Madrid, Spain. 21BIS. 2018. “Choice and diversity are the key to quicker, cheaper
18Financial Stability Board (FSB). 2019. “Decentralised financial cross-border retail payments.” Committee on Payments and Market
technologies: Report on financial stability, regulatory and governance Infrastructures press release, February, https://www.bis.org/press/
implications,” June; “Crypto-assets: Work underway, regulatory p180216.htm.
approaches and potential gaps,” May; and “Crypto assets regulatory 22https://www.fatf-gafi.org/publications/fatfrecommendations/
directory,” April. documents/regulation-virtual-assets-interpretive-note.html and

19https://www.bis.org/publ/bcbs_nl21.htm, and https://www.bis https://www.fatf-gafi.org/publications/fatfrecommendations/
.org/bcbs/publ/d490.htm. documents/guidance-rba-virtual-assets.html.

should consider monitoring developments to carefully For example, legal certainty of ownership rights is a
analyze what risks are emerging, identify the most precondition for the secure transfer of assets, but the
significant vulnerabilities, and determine priorities. general regime may fall short of providing enough ele-
There would be merit in an ongoing engagement with ments to determine who owns a particular crypto asset
the industry to enable authorities to anticipate risks in or whether a transfer can be deemed final. Jurisdictions
market developments and proactively seek appropriate could consider these issues as part of their overall
measures. The approach chosen by each jurisdiction approach to regulating crypto assets, ensuring that the
could be potentially different if micro prudential legal framework evolves with global financial markets
or investor protection risks are identified, versus an and technologies.
emergence of systemic risk, for instance. Develop- In addition, international cooperation in the
ment of regulatory frameworks should be carried out crypto-asset space will be crucial to ensure risks are
sequentially, based on priorities and resources, but the appropriately monitored and contained. Authorities
continuous assessment of risks and strategic planning would continue to use cooperation networks and
should be comprehensive and involve all financial standard-setter initiatives to exchange information
sector regulators and other relevant authorities. on developments in the crypto-assets space. Active
Regular and appropriate coordination of all relevant engagement is needed to identify cross-border consid-
authorities would facilitate a clear allocation of respon- erations and tackle potential regulatory arbitrage. Inter-
sibilities going forward. The potential for regulatory national cooperation in enforcement will, of course,
arbitrage, scarceness of expertise and resources, existing continue to be key for sanctioning and prosecuting
regulatory framework, and reputational risks would crypto-asset-related cases.
be taken into consideration when determining the Regulation needs to be risk-based and proportional.
responsible authority or authorities for the supervision Based on the analysis in this Note, some relevant
and regulation of relevant aspects of crypto assets. crypto-related activities and risks should receive imme-
One or more authorities may be involved and coordi- diate consideration. The public offer of crypto assets
nation with all other financial sector authorities is, in raises investor risks due to the potential for informa-
any case, key. tion asymmetries, lack of transparency, and plain fraud.
The chosen approach should aim to enhance Crypto-asset trading also raises several issues, includ-
investor protection and minimize the potential for ing operational and cyber risks and market integrity.
regulatory arbitrage while providing enough flexibility Custodial and wallet services pose investor protection
to adapt to a changing landscape and risk outlook. concerns due to segregation and safe handling of
Authorities should consider designing a comprehensive client assets. Many crypto-asset activities also involve
plan to address the risks stemming from crypto-asset financial integrity risks and AML/CFT regulation and
activities, including any necessary legislative or regula- supervision24 need to be an integral part of any regu-
tory actions, and continuous monitoring and coordi- latory framework. Finally, the exposure of the financial
nated communication initiatives—including investor sector to crypto assets and the relative size and growth
education programs. When deciding to use or adapt of the crypto-asset market can raise prudential and
existing regulation to address new risks, efforts should financial stability risks that should be considered. This
be focused on ensuring that specific crypto-asset fea- section will therefore focus on the following aspects of
tures are contemplated as needed to minimize regu- crypto assets: (i) offering; (ii) trading; (iii) custody; and
latory uncertainty. Authorities should ensure there is (iv) exposure to crypto assets. In many cases, crypto-
clarity and consistency in the terminology used. trading platforms have multiple roles. For example,
The soundness of the legal frameworks is a precon- some crypto exchanges issue their own stablecoins
dition for a strong financial system in the crypto-asset and provide trading of the coins. At the same time,
era.23 As discussed in the Bali Fintech Agenda, legal they provide a wallet service for the coins and hold
certainty helps build confidence in the trustworthiness some amount of coins as their inventory. If a subject
and reliability of financial products and services. There entity provides multiple functions and services, it is
may be legal aspects that are specific to crypto assets.
24Please understand that this note concentrates on financial
regulatory implications of crypto assets and purposely leaves out

23As noted previously, a dedicated Fintech Note on modernizing a detailed evaluation of AML/CFT considerations, which will be
legal frameworks is expected to be published in due course. discussed in an upcoming Fintech Note.

FINTECH NOTES
important to consider applying regulations relevant to ensure that the particularities and risks of each crypto
each function. asset are clearly and truthfully explained, but also to
provide the public with enough education—beyond
Offering Crypto Assets warnings and regulatory guidance—to be able to make
The way crypto assets are created and distributed informed decisions. As detailed in the Bali Fintech
may generate investor protection concerns. The process Agenda, developing adequate financial and technology
of mining, by which newly minted assets are dis- literacy programs (for example, through initiatives at
tributed ad hoc to those persons as determined by a different education levels, tailored communication and
specific protocol (for example, Bitcoin miners), does outreach programs, and so on) should be considered a
not seem to entail major risks to investors at the cre- foundational element of any regulatory initiative.
ation stage, since those acquiring the assets are limited Authorities should consider the need for appro-
and presumably knowledgeable of their characteristics priate disclosure requirements on public offerings of
and risks.25 However, the distribution of crypto assets crypto assets. The disclosure of accurate, comprehen-
that is undertaken as an offer to some investors or to sive, and timely information about issuers, as well as
the general public could raise risks to investors that about the assets themselves, builds sustained investor
deserve addressing. That would typically be the case confidence and allows for an informed assessment of
when the assets that are the subject of the offer are, performance and value. Authorities should consider
or will be, transferable and tradeable in any type of potential requirements for the availability of informa-
secondary market.26 In those cases, the public policy tion on crypto assets, both at the time of the initial
need emerges to ensure that investors are able to make offer and on a continual basis, so that investors and
informed decisions based on timely and accurate infor- users can make informed decisions on the purchase
mation. A similar consideration can be made for those and subsequent sale of the assets. The type of infor-
crypto assets that are not the subject of a public offer mation disclosed may vary depending on the type of
but rather made directly available to the public via a crypto asset being offered. Authorities should mandate
secondary market (see later section on trading crypto that disclosure requirements provide a comprehensive
assets), as investors or users should also be provided description of the features and risks of each asset. For
with enough information on the issuers and relevant offers of stablecoins, for instance, this would likely
assets before acquiring them. include an assessment of the collateral underlying the
It is essential to consider financial and technol- coins, an explanation of rights governing access to the
ogy literacy needs. There are already multiple types collateral, and a discussion of their stabilization and
of crypto assets and more continue to be developed, governance mechanisms.
with different features, uses, and risks. Yet the under- An appropriate disclosure regime would lead to
standing of the financial and technology implica- more accurate pricing and enhanced investor protec-
tions of each crypto asset is generally low; this partly tion. Requiring the disclosure of certain information
stems from the complex nature of the assets and the for crypto-asset offerings would significantly reduce
fast-changing technological environment, but also from the number of investors falling for fraudulent offers,
the lack of clear and reliable information available to as those could be singled out more efficiently. It would
the public. There is a public policy need not only to also provide the investor or user the opportunity to
make an informed decision on their purchase with
25The fact that the creation of those assets does not seem to adequate data and facts on the risks derived from the
entail risks to investors and may not trigger the application of features of each crypto asset. Moreover, transparency
specific investor protection regulation does not mean other activities
related to those same assets are not subject to other risks for which and disclosure requirements can also assist with market
regulation should be considered (for example, trading), as per the efficiency, allowing for more accurate asset pricing.
following sections. Please note that those assets could be prone to Finally, jurisdictions may consider the need for require-
risks arising out of concentration issues (for example, by a small
ments to ensure the fair and equitable treatment of
number of miners or agents) potentially vulnerable to manipulation,
fraud, or a so-called “51 percent attack,” a form of manipulation of a crypto-asset investors.
blockchain where a faulty consensus is formed by holding more than The existing regulatory framework may be too
50 percent of mining power.
26Some assets may involve initial transferability restrictions or
limited to prevent reputational risks to regulators and
lock-up periods but can become fully transferable and tradeable at a contain regulatory arbitrage. Some jurisdictions are
later stage. applying the existing regulatory framework available

Figure 5. Crypto Assets and Other Fintech Areas in a Context of New Frameworks
Crypto asset regulation is identified by respondents as the main (64 percent) gap,
which so far has only been addressed by 30 percent of respondents.
100
Regulators who have modified their frameworks to

90
accomodate a fintech development 80
70
60
(Percent)
50
Mobile money/payment services
40
30 Algorithmic/automated Crypto assets

trading or smart
20 contracts P2P lending
Insurance
10 Lending activities with AI
Robo-advisors
0
0 10 20 30 40 50 60 70 80 90 100
Regulators who have identified a gap in framework resulting from a fintech development
(Percent)
Source: IMF
for securities to the offer of some crypto assets (those of their crypto-asset work through the active use of
that meet the jurisdiction’s legal definition of securi- enforcement powers. Finally, the securities disclosure
ty).27 This approach may be valid as an approximation regime may not be adequate for all crypto-asset offers
to the subject, but it falls short of addressing many and authorities may want to consider an approach that
risks. In fact, many crypto assets would fall outside of can adapt to different asset or issuer features (Figure 5).
the legal definition of a securities but still raise similar Some jurisdictions are already considering moving in
investor protection issues. Also, issuers may purposely this direction, for example:29
seek to create crypto assets in such a manner as to •• In France, the recently approved Loi PACTE pro-
escape the legal definition of a security or choose to vides for a specific voluntary regime30 for compa-
issue in jurisdictions where that definition is narrow- nies seeking to offer their crypto assets publicly
er.28 This jurisdictional approach also implies that the (other than those qualifying as securities, which are
securities regulators will be forced to carry out much bound by the securities regulatory regime). Potential
27Some examples of jurisdictions that have warned about the 29For an in-depth discussion of the treatment of crypto assets in
application of securities regulatory frameworks to some crypto assets different jurisdictions, please refer to the relevant section of “Fintech:
are the Hong Kong SAR, Malta, Singapore, the United Kingdom, The experience so far” (IMF, Policy Paper No. 19/024 https://www
and the US SEC. .imf.org/en/Publications/Policy-Papers/Issues/2019/06/27/Fintech
28The definition of a security is specific to each jurisdiction’s legal -The-Experience-So-Far-47056). The paper points out that some reg-
system and it is typically complex and subject to court interpreta- ulators have created special regulatory frameworks for crypto assets
tion. The United States, for instance, has a very broad definition for while most are taking a case-by-case approach. Only a few juris-
a security, encompassing—among other things—any note, stock, dictions have provided specific guidance as to the types of licenses
treasury stock, security future, bond, debenture, evidence of indebt- that are required, and the parts of the regulatory framework that are
edness, certificate of interest or participation in any profit-sharing triggered by different types of activities with crypto assets. For most
agreement, collateral-trust certificate, preorganization certificate or jurisdictions that have stated that securities legislation would apply
subscription, transferable share, investment contract, and so on—15 to securities-like assets, the practicalities remain unclear and many
U.S.C. §77b(a)(1). The US Supreme Court has also interpreted the questions unanswered (that is, how and to what extent securities
term “investment contract” for the purposes of the Securities Act in regulation will be applied to each of the aspects of crypto assets issu-
a broad manner, as it is considered to mean “a contract, transac- ance, offer, trading, and intermediation is generally not discussed).
tion, or scheme whereby a person invests his money in a common 30Please note that the voluntary nature of the regime can work
enterprise and is led to expect profits solely from the efforts of the well to reduce risks to investors but may fall short of an adequate
promoter or a third party” (SEC v. W.J. Howey Co.). solution to address regulatory arbitrage.

FINTECH NOTES
issuers can apply to the French securities regula- The work of IOSCO on crypto asset trading plat-
tor (Autorité des Marches Financiers, AMF) for a forms is particularly relevant. While still in the consul-
visa by submitting their white paper, which must tation phase, IOSCO has put forward a report on the
include some detailed information (for example, a issues, risks, and regulatory considerations relating to
description of the project, rights conferred by the crypto-asset trading platforms that examines the main
tokens, the legislative court in case of disputes, and issues surrounding secondary market trading of crypto
the economic purpose and use of the funds collected assets. The document points to the relevant sections of
during the offer). the IOSCO principles and methodology that would be
•• The Virtual Financial Asset Act (VFAA), which helpful for authorities when considering potential reg-
came into effect in Malta in 2018, also creates a ulation and supervision of crypto-asset platforms. All
specific regime for crypto assets, including public of the elements considered below are covered by IOS-
offering. Malta has created a new regulatory author- CO’s consultation report in more detail and with clear
ity for the blockchain sector, the Malta Digital Inno- references to other IOSCO materials when relevant.
vation Authority, and regulates the offer of virtual When building a regulatory framework for
assets, which are any crypto assets not qualifying as crypto-asset platforms, authorities should consider the
either electronic money, financial instruments (as following elements:
per respective European Union legal definitions), or •• Governance requirements for platform operators,
virtual tokens (akin to utility tokens). including prudential requirements. Robust gover-
•• Japan’s Financial Services Agency introduced a regis- nance would be established by fit and proper senior
tration requirement to crypto-asset trading platforms management and control functions. In addition,
in 2017 under the Payment Services Act (PSA) and having the necessary resources to run a platform can
it led crypto assets designated as payment tokens provide certain assurances on the reliability of the
(such as Bitcoin) and as utility tokens to fall into the business. Any capital requirements would need to
PSA scope. Subsequently, the Financial Instruments consider whether the operator will function bilater-
and Exchange Act (FIEA) (the acts for traditional ally, that is, being counterparty to each transaction
security platforms) is to be amended to define and or multilaterally by matching buy and sell orders.
regulate crypto assets designated as investment-type In the first case, counterparty risk on the part of
tokens, which are regarded as securities. The PSA and the operator is added, calling for risk-based capital
FIEA aslo provide more robust frameworks to pro- requirements.
ote user protection and clarify applicable rules. The •• Requirements regarding access to the platform.
revised acts will come into force by June 2020 at the Protecting the orderly functioning of trading usually
latest. requires certain control over who accesses and uses
the platform. Crypto-asset platforms should have
Trading Crypto Assets appropriate processes and controls that consider
While there are some differences in the way they whether the platform allows direct retail access—in
operate, crypto asset trading platforms and exchanges which case the platform would not be able to rely
raise many similar issues to those of securities trading on the due diligence of intermediaries.31
platforms. Crypto platforms differ from securities plat- •• Requirements for the robustness, resiliency, and
forms in two main ways: they typically permit direct integrity of operating systems. One of the main
access by retail investors and they may also provide vulnerabilities of crypto-asset platforms has been
custody services. Some crypto asset trading platforms cyber-attacks. Adequate processes and controls can
resemble stock trading venues, but others may be help protect them from hacking or theft and provide
directly accessed by clients and therefore resemble reassurance that they are otherwise robust and resil-
more a market intermediary than a trading platform ient enough to provide trading integrity.
(see Box 1). This means that, on top of traditional •• Market integrity requirements. Crypto assets are
securities trading concerns—operational issues, orderly prone to manipulation, due to their high volatility,
trading, manipulation, transparency, and so on—
31Securities trading platforms are typically only accessible to inter-
authorities may also have to think about specific risks
mediaries; therefore, members of the platform are regulated entities
arising from the nature of the platforms and from the who, in turn, oversee retail clients’ due diligence requirements
provision of custodial services. (including AML/CFT and suitability).

potential conflicts of interests/concentration issues, •• Clearing and settlement implications. In addition

and low level of disclosure. Authorities should to custody, crypto-asset trading platforms may also
consider what market abuse rules and surveillance perform clearing and settlement activities (typically
mechanisms should be in place to adequately pro- carried out by third parties in traditional securi-
tect investors. ties trading). Understanding how legal transfer
•• Transparency requirements. To promote the of ownership of the assets takes effect is key to
efficiency and integrity of trading, it is important ensuring smooth functioning of these services. Legal
to understand the extent of pre- and post-trade certainty may vary considerably depending on the
information, to whom it is made available, via what legal framework of the jurisdiction where the service
method of dissemination, and whether it is avail- provider is located. Authorities should also con-
able on an aggregated basis with other platforms sider what internal record keeping and accounting
trading the assets. Authorities should consider these systems platforms use and whether they are appro-
elements to determine whether trading information priate to ensure that clients are correctly and timely
on crypto assets is reliable, timely, and available to allocated funds and assets.
the public on a nondiscriminatory basis. Addition- •• Products offered in the platforms. Platforms may
ally, consideration should be given to the availability have different approaches to how they determine
and transparency of platform rules and procedures, which assets can be accepted for trading. Authorities
including order processing and how errors and can- need to consider what requirements or criteria are
cellations are handled. being applied. As discussed in the previous sec-
•• AML/CFT requirements. Platform operators tion and to ensure adequate disclosure to investors
should be expected to ensure they comply with and users of crypto assets, there should be clear
applicable FATF standards for AML/CFT. expectations regarding availability of information
•• Products offered in the platforms. Platforms may on products traded, including risks. This is partic-
have different approaches to how they determine ularly relevant in platforms with direct retail client
which assets can be accepted for trading. Authorities access. Authorities should consider whether there
need to consider what requirements or criteria are is a need for regulatory determination of the types
being applied. As discussed in the previous sec- of assets that can be accepted for trading or if there
tion and to ensure adequate disclosure to investors is a need to be otherwise involved in the process of
and users of crypto assets, there should be clear product listing.
expectations regarding availability of information
on products traded, including risks. This is partic- Custody of Crypto Assets
ularly relevant in platforms with direct retail client Custody of crypto assets takes place via wallets. A
access. Authorities should consider whether there wallet is a file (or the software used to manage it), in
is a need for regulatory determination of the types which a unique private key, akin to a password, and
of assets that can be accepted for trading or if there the public key, the user’s “address” in the form of an
is a need to be otherwise involved in the process of alpha-numeric string, are stored for the crypto assets
product listing. owned by a user. The ownership of crypto assets relies
•• Custody. Crypto-asset trading platforms may also on knowing the private keys stored in the wallet—if
hold custody of client assets, as opposed to tra- a wallet file (and thus private keys) is lost, then the
ditional securities trading platforms (see Box 1). crypto assets “stored” in it are unrecoverable.
Therefore, authorities should consider what mea- Key characteristics of wallets that need consideration
sures are required to safeguard clients’ assets: to from a regulatory perspective are custodianship and
ensure an orderly liquidation and return of client type of storage and security of private keys. In terms
assets in the event the platform closes down, to of custodianship, a wallet can be managed by the users
prevent the use of clients’ assets for proprietary themselves or delegated to a third-party custodian (that
purposes, and to facilitate the prompt identification is, a “wallet provider”), which is often a crypto-asset
and transfer of positions. See the next section for exchange, but can also be a third-party service pro-
a discussion on a regulatory approach to custo- vider. In terms of storage, wallets can be classified as
dial services. “hot” or “cold”; those that are kept online and con-
nected and those that are kept offline, respectively.

FINTECH NOTES
Cold and hot wallets face different types and degrees Exposure to Crypto Assets
of risk. Because the function of a wallet is only to store Currently, there is no global standard for the
the crypto asset’s private key, a cold wallet can be as prudential treatment of exposures to crypto assets
simple as a paper put in a deposit box or an encrypted for banks or other regulated entities. Most jurisdic-
file on a thumb drive. In this case, the risks of loss or tions have not yet clarified prudential treatment of
physical damage to the wallet are greater, but cyber crypto-asset exposures, and thus supervised entities
risks are eliminated until the user needs to use the might be treating those exposures differently. For
wallet and, thus, change its status from cold to hot. example, crypto-asset positions could be classified as
Most users and crypto-trading platforms alike use cold intangible assets, cash, or commodities, and depending
wallets for storing most of their crypto assets and only on the classification, their prudential treatment could
keep what is needed for transactions in the short term be completely different.
in a hot wallet. Additionally, there is no clear delinea- Forthcoming international standards are likely to
tion between cold and hot wallet technologies. A hot reflect high risks of crypto assets. The Basel Commit-
wallet becomes cold upon disconnecting it from the tee on Banking Supervision has issued a statement on
network and vice versa. crypto assets, noting that “The committee will in due
Wallets are the components of crypto-asset systems course clarify the prudential treatment of such expo-
that are most exposed to cyber risk. Specifically, attack- sures to appropriately reflect the high degree of risk of
ers target the private keys in hot wallets, as obtaining crypto assets.” The statement also described minimum
them equates to impersonating the owner and the expectations on due diligence, risk management, and
ability to steal the funds from corresponding wallets. disclosure.32
Attacks against cold wallets, while much more difficult, High volatility of crypto assets warrants a conserva-
are also possible. Thus, the security of the wallet is a tive treatment on direct exposures. Regulated entities
crucial factor in the overall security of a crypto-asset could be vulnerable to high risks from the direct
system. Wallet security requirements should be aligned exposures to crypto assets due to their high volatility. It
with best practices in cryptography, with a focus on is expected that prudentially regulated financial insti-
key protection and key lifecycle management controls. tutions follow a conservative approach, such as capital
Also, due to the unclear delineation between cold deductions or the imposition of high-risk weights, for
and hot wallet technologies, requirements should not their internal risk and capital management purposes.
concentrate on this level of technical detail and remain Robust segregation and separation between traditional
principles based (for example, requiring that wallet business and crypto business is desirable, although
protection measures be proportionate at all times with group-wide and step-in risk would also need to be
the security risk they are exposed to). considered even when crypto businesses are located in
In addition, there is a compelling case for the a separate entity.
prudential regulation of third-party wallet service Exposures to stablecoins could incorporate benefits
providers to afford a degree of protection for custom- from their collateral only if the issuers are subject to
ers and to mitigate contagion risk to other parts of appropriate regulation and supervision. Many sta-
the financial sector. By allowing a third party to store blecoins are reported to be fully backed by safe and
private keys, there could be legal uncertainty on the reliable collateral, such as hard currencies, bank depos-
inclusion of crypto assets held in custody in the event its and government bonds. In principle, good quality
of its bankruptcy, if the customers’ assets are exposed collateral could be reflected in the prudential treatment
to the risk of comingling with those of other customers of the exposures. However, many of the issuers are not
or those of the service provider, as well as operational subject to financial regulation, and there may be legal
failures or theft or loss of private keys. Therefore, it uncertainty regarding the availability of collateral in
is recommended to consider if those wallet providers a stressed environment. The risk mitigation provided
should be subject to some reporting and prudential by collateral should only be reflected in the prudential
regulation requirements, such as risk management, treatment of exposures if robust safeguards are in place,
including operational and cyber risk, protection of such as prudential regulation and supervision covering
client assets, minimum capital, and liquidity require-
ments (particularly in case the third-party reuses the 32BCBS statement on crypto assets (https://www.bis.org/publ/
customer’s crypto assets). bcbs_nl21.htm)

the ownership and availability of the collateral by the matures. Regulators need to continuously monitor the
financial regulator or the central bank. crypto-asset landscape to understand the direction of
Financial institutions are encouraged to monitor industry developments. In this sense, ongoing efforts
their indirect exposures. While most financial insti- to address data gaps to monitor markets and poten-
tutions seem to have conservative investment policies tial contagion effects to the existing financial sector
toward crypto assets, they might be exposed to them are welcome.
indirectly. This could be through loans to crypto Regulation should not be seen as stifling innovation,
investors, derivative exposures with crypto-asset trading but rather as building trust. As for the more traditional
platforms, cyber insurance to wallet providers, and so financial sector, regulation can instill trust in the busi-
on. While such risks brought by indirect exposures ness and foster a safer development of the sector by
are not the same as from direct exposures, they can be providing clear guidelines that remove uncertainty and
strongly correlated with market movement. Financial thus foster confidence. Regulators need to take a proac-
institutions are therefore expected to monitor their tive approach to address any risks potentially emerging
indirect exposures to crypto assets. from industry developments and swiftly build capacity
Prudentially regulated financial institutions also and expertise in new instruments and new technology
need to manage risks arising from their role as issuers given the high reputational risks involved. Capacity
of crypto assets or crypto-asset-linked products. and resources of supervisory authorities, as well as
Some banks have or are planning to issue coins and potential damage to trust in the financial sector will
tokens (such as JP Morgan—JPM Coin; UBS—Util- need to be evaluated in each case. Moreover, regulators
ity Settlement Coins; and MUFG Bank—MUFG also need to clearly communicate the role of regulation
Coin) for more efficient payments and more effective and supervision to the public, emphasizing the risks
delivery versus payment of securities settlements. Some which are borne by investors and consumers. That is
financial institutions have already issued structured important to avoid misunderstanding or over-trust in
bonds linked to crypto assets. Some may issue stable- any new regulation or the role of the authorities.
coins for domestic or cross-border payment services Finally, the cross-sector and cross-border dimensions
or trade financing. Some of those are economically of crypto assets make domestic and international coor-
similar to deposit taking activities and thus should be dination and cooperation key. In some cases, it may
subject to existing prudential regulation, such as the be challenging to determine the geographic location33
liquidity coverage ratio and net stable funding ratio and therefore the jurisdictional powers over some of
requirements on those activities. Careful analysis would these assets. While regulation should be tailored to
be needed if a separate issuing entity is established jurisdiction-specific features, a consistent approach and
“independently” from prudentially regulated financial international cooperation will be key to prevent and
institutions. While banks may not be legally obliged to minimize regulatory arbitrage and potential incon-
meet redemption requests to the issuing entity, banks sistencies in the application of laws and regulations.
may face strong pressure to step in and provide liquid- Given the cross-border and global accessibility aspects
ity to the issuing entity if this could cause reputational of crypto assets, domestic regulatory measures that do
risk for the group. In any case, financial institutions not consider cross-border issues and overseas regulatory
are expected to manage operational risk (arising from measures may create opportunities for cross-border reg-
the platform operation of cross-border payment ulatory arbitrage. Cross-border transactions may also
services) and conduct risk when issuing structured
33While the issuing entity or the main IT system is located in a
bonds). See Box 3.
jurisdiction, the main activities (such as marketing, solicitation) tend
to be conducted in the jurisdictions where the main investors are
located. For example, in August 2018, a US district court applied
Handle with Care the US securities exchange act in the case of the Tezos Foundation.
Although the foundation was established in Switzerland and the sub-
Ultimately, developing an adequate regulatory ject tokens were claimed to be created in Alderney, an English Chan-
framework for this quickly evolving industry will nel Island, the court rejected the claim that the transactions occurred
involve intense monitoring and a flexible approach. outside the United States based on the following four reasons: i) the
marketing website was located on a server in Arizona, ii) it was also
Crypto assets are at the core of the fintech revolution,
run primarily by an individual in California, iii) the marketing was
and developments will direct the regulatory and super- almost exclusively targeting US residents, and iv) validating nodes
visory focus in different directions until the industry were densely populated in the United States.

FINTECH NOTES
Box 3. A Special Mention of Distributed Ledger Technology Adaptations by Financial Institutions: JPM
Coin
In February 2019, J.P. Morgan Chase N.A. prototype test has been successfully completed. The
announced JPM Coin, focusing on its wholesale coin would be managed under a private blockchain.
clients. JPM Coin is based on blockchain technol- As explained, it is limited to wholesale users and, thus,
ogy enabling the instantaneous transfer of payments scalability and capacity of the system would not be a
among JPM group’s institutional clients. JPM Coin is binding constraint for the time being. This approach
a digital coin representing US dollars held in desig- could potentially be expanded to retail payments once
nated accounts at JPMorgan Chase N.A. Other finan- new technologies have addressed scalability and capac-
cial institutions have also initiated similar projects and ity constraints, or interbank payment systems have
coins, such as Utility Settlement Coins by UBS and been upgraded.
others and MUFG Coin by MUFG Bank. This box is Risks associated with the JPM Coin are similar to
focusing on JPM Coin to illustrate how existing finan- its wholesale bank deposits. Holders of the coin are
cial institutions are adopting new technologies, which exposed to the default risk of JPMorgan Chase N.A.,
might eventually help the existing financial institutions unless covered by Federal Deposit Insurance Cor-
to compete with fintech innovations. poration. Holders might be exposed to operational
Potential use cases of JPM Coins include i) and cyber risk, while the risk would not be as high
cross-border payments; ii) delivery versus payment as that of other crypto currencies issued under public
between tokenized securities and the coin; and iii) blockchains. JP Morgan Group would face liquidity,
internal liquidity optimization for large, complex operational, and cyber risks, however those risks would
corporate clients. Instantaneous transfer of payments be similar to those of traditional banking operations,
would be available 24 hours, 7 days a week, every day both in terms of nature and scale. However, it should
of the year. The coin could be used to settle tokenized be noted that faster transfer of the coins would require
securities transactions where simultaneous delivery an upgrade of liquidity risk management by the indi-
versus payment could become available. The JPM vidual branch and entity of the JPMorgan Group.
Coin will be issued on Quorum Blockchain and subse- Existing regulations (such as capital and liquidity
quently extended to other platforms. JP Morgan Chase requirements) could be well fit to the risks to which
N.A. states that JPM Coin will be operable on all holders of JPM Coins and JP Morgan Chase N.A.
standard blockchain networks. Finally, corporate cli- would be exposed. Holders of JPM Coins would
ents would be able to minimize liquidity needs within treat exposures (such as the risk weight for capital
the group significantly when the instantaneous transfer requirement and recognize it properly for the liquidity
of liquidity is available, allowing complex international requirement) as they would for the same amount of
groups to centralize their liquidity pool globally. bank deposits. JP Morgan Chase N.A. itself would
The holder of the coin can redeem it for the treat the issuance and corresponding assets in the
equivalent amount of US dollars, similar to the bank’s same manner as the assets and liabilities derived
demand deposit. JP Morgan Chase N.A. plans to from traditional deposit taking activities. Supervisors
extend the coin to other major currencies. Only insti- would address operational and cyber risk of both the
tutional customers passing the JP Morgan Chase Bank coin holders and JP Morgan. If that is the case, there
“Know-Your-Customer” standards and onboarded should not be any material regulatory gaps.
for the JPM Coin can transact with JPM Coins. The
cause other challenges, such as undesired complexity in

assessing the drivers of capital flows and the dimin-
ished effectiveness of domestic policy responses, such
as monetary policies and macroprudential measures.
To mitigate those risks, it is important for authorities
to enhance cross-border cooperation. The need for
new mechanisms for regulatory cooperation is likely to
increase in the future.

Appendix I. Illustrative examples of crypto assets—related risks
Risk category Can be realized through…. Example
Investor Operational and cyber risk In May 2019, one of the largest crypto exchanges by trading volume (Binance) suffered from cyber-attacks with a total of $41 million in Bitcoin being stolen.2
protection risk of wallet providers and Sixteen million dollars were stolen from digital asset exchange Cryptopia in January 2019.3 Exchanges CoinBene and DragonEx lost a combined $46 million
crypto-trading platforms1 dollars’ worth of Ethereum-based tokens through attacks disclosed in March 2019.4 South Korean exchange Bithumb was also rocked by its third attack,
when $13 million worth of coin was lost in March.5 Later reports suspected a further $6 million in Ripple had also been taken. Coinbin, another South Korean
exchange, was forced into bankruptcy last quarter—roughly $26 million had been lost.6 Investors in QuadrigaCX, Canada’s largest cryptocurrency exchange,
were unable to access their funds (about $190 million) after its founder, Gerald Cotten, died in December 2018. According to an Ernst & Young (the bankruptcy
auditor) report issued in May 2019, a significant number of clients’ assets had been transferred to the founder’s private accounts.7
Market, credit, and default The New York Attorney General’s office has alleged that crypto-exchange Bitfinex, which lost $850 million, subsequently used funds from affiliated stablecoin
risks of coins/tokens’ issuers operator Tether to cover the shortfall.8
Market integrity risk The majority of crypto asset trading occurs over centralized exchanges (with custody and centralized settling) but decentralized cryptocurrency exchanges
(DEXes) allow for more direct trading and are gaining more prominence. Researchers at Cornell Tech recently found that high-frequency trading on these
exchanges is using autonomous algorithmic trading programs to take advantage of ordinary users’ trading patterns and other market manipulation
techniques.9
Commingling risk In Italy, an exchange called BitGrail that was hacked was also found responsible during the court proceedings to frequently deposit customer funds into wallets
directly under Firano’s (the exchange’s owner) control.10
Market integrity risk The vast majority of the almost 2,500 crypto assets listed on CoinMarketCap.com are not backed by anything tangible. Only 66 stablecoins—30% of total
announced tokens—are actually live and operational.11 By market capitalization, the top 10 comprise about 90%, of which Tether (the only stablecoin in the top
10) comprises less than 2%. However, it should be noted that by 24h trading volume it comprised 37% of that top 10 group.
Risk of mis-selling and fraud The Wall Street Journal conducted an analysis of 3,291 crypto assets white papers and concluded that 16% showed signs of plagiarism, identity theft, and
promises of implausible returns. At least 61% contained luring terms such as “nothing to lose,” “guaranteed profit,” “highest return,” “no risk.” US state and
federal regulators have previously issued cease-and-desist orders on various offerings with similar language.12
AML/CFT risk There have been a number of high-profile money laundering cases, for example, AlphaBay, the largest online criminal marketplace on the Internet, where more
than $1 billion was exchanged through crypto assets until the US District Court of Eastern California shut it down in a multinational law enforcement operation.
The platform allegedly was 10 times larger than its predecessor, Silk Road.13
Prudential and Prudential risk The ECB Crypto-Assets Task Force published a paper in which it provides recommendations for the prudential treatment of crypto assets.14 It advocates
systemic risks measures such as subtracting crypto assets exposures from CET1 or requiring the segregation of crypto business to ensure FMI’s safety. The BCBS issued
a statement setting out its prudential expectations related to banks' exposures to crypto assets and related services that will further clarify the prudential
treatment of such exposures in the future.
Business model risk There is potential blurring of lines between the regulated financial institutions business models and unregulated crypto assets and exchanges as more and
Appendix I. Illustrative Examples of Crypto Assets–Related Risks
more FIs engage with crypto assets. For instance, IBM has signed six banks to issue stablecoins on its Stellar public blockchain. At the same time, multiple
banks have announced their interest in issuing stablecoins and JP Morgan has confirmed it is working on a digital coin for payments.
Systemic risk BCBS has warned that the crypto industry can potentially “raise financial stability concerns and increase risks faced by banks.”15
Note: AML/CFT = anti–money laundering/combating the financing of terrorism; BCBS = Basel Committee on Banking Supervision; CET1 = common equity tier 1; ECB = European Central Bank.
1Due to the large volume of hacks, it is impossible to provide evidence (albeit it is available in public domain) of the entirety of crypto-exchange hacks and funds lost, therefore, we only cite the most recent incidents.
2Lam, Eric. 2019. “Hackers steal $40 million worth of Bitcoin from Binance Exchange.” Bloomberg, May 7.
3Khatri, Yogita. 2019. “Hacked exchange Cryptopia discloses estimate of stolen crypto.” Coindesk. Feb. 27.
4Cimpanu, Catalin. 2019. “Cryptocurrency platforms DragonEx and Coinbene disclose hacks.” Zero Day Net, March 27.
5Zhao, Wolfie. 2019. “Crypto Exchange Bithumb Hacked for $13 Million in Suspected Insider Job.” Coindesk, March 30.
6Kramer, Melanie. 2019. “Embezzlement, $26 Million Loss Bankrupts Korean Crypto Exchange Coinbin.” CNN, Feb. 24.
7Alexander, Doug. 2019. “Investigation uncovers mystery of Quadriga’s missing cryptocurrencies worth millions.” Insurance Journal, June 21.
8De, Nikhilesh. 2019. “Bitfinex covered $850 million loss using Tetherfunds, NY prosecutors allege.” Coindesk, April 25.
9Daian, Philip, Steven Goldfeder, Tyler Kell, Yunqi Li, Xueyuan Zhao, Iddo Bentov, Lorenz Breidenbach and Ari Juels. 2019.“Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized
International Monetary Fund | December 2019

Exchanges.” ArXiv abs/1904.05234.
10Zmudzinski, Adrian. 2019. “Owner of Hacked Crypto Exchange BitGrail Sentenced to Return Funds to Customers.” Cointelegraph, Jan. 28.
11Boddy, Max. 2019. “Research: Only 30% of Known Stablecoins Are Live and Operational.” Cointelegraph, June 28.
12Shifflett, Shane, and Coulter Jones. 2018. “A flood of questionable cryptocurrency offerings.” The Wall Street Journal, Dec. 26.
19
13Hui, Ada. 2018. “US Government Seizes Lambo and Crypto Millions from Dead Dark Web Kingpin.” Coindesk, Sept. 17.
14European Central Bank (ECB) Crypto-Assets Task Force. 2019. Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures. ECB Occasional Paper 223. Frankfurt am Main, Germany:
European Central Bank.

15Bank for International Settlements. 2019. “Statement on crypto assets,” March 13. https://www.bis.org/publ/bcbs_nl21.htm.

FT Nea 2019003

Uploaded by

Copyright:

Available Formats

FT Nea 2019003

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FT Nea 2019003

Uploaded by

Copyright:

Available Formats

FINTECH NOTE

Regulation of Crypto Assets

Prepared by Cristina Cuervo, Anastasiia Morozova,

Names: Cuervo, Cristina, author. | Morozova, Anastasiia, author. | Sugimoto, Nobuyasu,

Publication orders may be placed online, by fax, or through the mail:

Appendix I. Illustrative Examples of Crypto-Assets–Related Risks 19

International Monetary Fund | December 2019 iii

AMF Autorité des Marchés Financiers of France

International Monetary Fund | December 2019 v

Introduction1 cymakers and the international community into 12

International Monetary Fund | December 2019 1

Figure 1. The Rapid Growth of Crypto Assets

300 Billion Bitcoin Ethereum Ripple

4Financial Stability Board (FSB). 2019. “Decentralised financial

technologies: Report on financial stability, regulatory and governance

2 International Monetary Fund | December 2019

Figure 2. Market Structure of Crypto Assets

Sells ICO coins

Ledger of the crypto-

Source: IMF staff.

The Risks Investor Risks

term should be understood to also include end users (both wholesale

International Monetary Fund | December 2019 3

4 International Monetary Fund | December 2019

Figure 4. A Comparison of Volatility: Crypto Assets versus Traditional Financial Instruments

International Monetary Fund | December 2019 5

Box 1. Crypto-Trading Platforms

6 International Monetary Fund | December 2019

International Monetary Fund | December 2019 7

Box 2. A Special Mention of Recent Crypto Developments: Facebook and Libra

8 International Monetary Fund | December 2019

International Monetary Fund | December 2019 9

directory,” April. documents/​regulation​-virtual​-assets​-interpretive​-note​.html and

10 International Monetary Fund | December 2019

regulatory implications of crypto assets and purposely leaves out

International Monetary Fund | December 2019 11

12 International Monetary Fund | December 2019

Regulators who have modified their frameworks to

accomodate a fintech development 80

30 Algorithmic/automated Crypto assets

International Monetary Fund | December 2019 13

14 International Monetary Fund | December 2019

potential conflicts of interests/concentration issues, •• Clearing and settlement implications. In addition

International Monetary Fund | December 2019 15

customer’s crypto assets). bcbs​_nl21​.htm)

16 International Monetary Fund | December 2019

International Monetary Fund | December 2019 17

cause other challenges, such as undesired complexity in

18 International Monetary Fund | December 2019

International Monetary Fund | December 2019

European Central Bank.

You might also like

directory,” April. documents/regulation-virtual-assets-interpretive-note.html and

customer’s crypto assets). bcbs_nl21.htm)