## imf-fsb-synthesis-paper-policies-for-crypto-assets ## Source details **Canonical URL:** [imf-fsb-synthesis-paper-policies-for-crypto-assets](https://www.imf.org/-/media/files/research/imf-and-g20/2023/imf-fsb-synthesis-paper-policies-for-crypto-assets.pdf) ## Other formats - [Markdown version](/-/media/files/research/imf-and-g20/2023/imf-fsb-synthesis-paper-policies-for-crypto-assets.pdf.md) - [Structured JSON version](/-/media/files/research/imf-and-g20/2023/imf-fsb-synthesis-paper-policies-for-crypto-assets.pdf.json) --- ### Purpose and scope - Objective: synthesize the IMF’s and the FSB’s (alongside SSBs’) policy recommendations and standards to provide comprehensive guidance to help authorities address macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through so-called decentralised finance (DeFi). - Note: This paper describes how the policy and regulatory frameworks developed by the IMF and the FSB (alongside SSBs) fit together and interact with each other, but it does not establish new policies, recommendations or expectations for relevant member authorities. - Scope exclusion: Central bank digital currencies (CBDCs) are not within the scope of this report. ### Key observed developments and statistics - Crypto-assets have existed since January 2009. - In 2021, the total market value of crypto-assets grew 3.5 fold. - In the crypto-asset market turmoil that started in May 2022, the total market value shrank from a peak of $2.6 trillion to below $1 trillion. - So far, only two jurisdictions have granted legal tender status to crypto-assets, and one of them rescinded that status. - The IMF sets out nine core elements of effective policies for crypto-assets (IMF 2023a). - The FATF adopted a Roadmap in February 2023 to accelerate global implementation of AML/CFT controls and supervision in the crypto-asset sector, with steps publicly identified for jurisdictions with materially important crypto-asset activity in the first half of 2024. ### Main risks and implications - Macro-financial interaction - Widespread adoption could undermine monetary policy effectiveness, circumvent capital flow management measures, exacerbate fiscal risks, divert financing from the real economy, and threaten global financial stability. - Financial instability and price instability can reinforce each other, cause destabilising financial flows, and strain fiscal resources. - Market structure and volatility - Crypto-assets have displayed significant volatility and episodes of sharp appreciation and steep price reversion. - Stablecoins can be key points of interconnectedness; vulnerability to deviation from pegs can lead to declines in market capitalisation and wider strain in crypto-asset markets. - Current connectivity and systemic footprint - Direct connections between crypto-assets and systemically important financial institutions, core financial markets, and market infrastructures have been limited to date. - Crypto-asset markets represent only a small portion of global financial assets, but increasing connectivity could raise spillover risks to the broader financial system. - Rate of crypto-asset adoption is generally higher in EMDEs relative to AEs (Chainalysis 2022). ### Policy conclusions and overarching recommendations - Need for comprehensive policy and regulatory response - A comprehensive policy and regulatory response is necessary to address macroeconomic and financial stability risks. - Comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks. - Macroeconomic policy actions - Safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility, and adopt unambiguous tax treatment of crypto-assets. - Regulatory and supervisory actions - Regulation and supervision of licensed or registered crypto-asset issuers and service providers can support capital flow measures, fiscal and tax policies, and financial integrity requirements. - Licensed, regulated and supervised crypto-asset service providers and appropriate reporting requirements can reduce data gaps needed for monitoring cross-border transactions and capital flows. - Regulatory principle - The FSB (along with SSBs) applies the principle of “same activity, same risk, same regulation”, establishing a minimum baseline jurisdictions should meet. - Financial integrity - Jurisdictions should implement FATF AML/CFT standards that apply to virtual assets (VAs) and virtual asset service providers (VASPs). - Jurisdictions should identify and assess ML/TF risks associated with VAs and take appropriate steps to manage and mitigate those risks. - Jurisdictions and VASPs should refer to the FATF Guidance for a Risk-Based Approach to VAs to understand and effectively implement AML/CFT obligations. ### Considerations for EMDEs and targeted measures - Some jurisdictions, particularly EMDEs, may want additional targeted measures beyond the global regulatory baseline and should adapt these to country-specific circumstances. - Jurisdictional characteristics determining vulnerabilities: - (i) size of the economy and financial system, - (ii) regulatory priorities, - (iii) institutional quality and capacity, - (iv) level of financial integration into the global economy. - Implementation of targeted measures may vary by country based on unique circumstances and capacity constraints. ### Implementation roadmap and international cooperation - Objectives: build institutional capacity beyond G20 jurisdictions; enhance global coordination, cooperation, and information sharing; address data gaps necessary to understand the rapidly changing crypto-asset ecosystem. - Roles and high-level timelines: - IMF to integrate crypto-asset policies into Article IV assessments and FSAP where suitable — Timeline: 8-12 months. - IMF and World Bank to integrate recommendations for a comprehensive framework for crypto-assets as part of technical assistance and capacity building — Timeline: 8-12 months. - IMF, with support of other IOs and SSBs, to develop a common framework for addressing data gaps and collect “test data” on crypto-assets — Timeline: By end-2025. - FSB to review status of implementation of its high-level recommendations at the jurisdictional level by end-2025. - FATF to publicly identify steps taken to implement the standard in jurisdictions with materially important crypto-asset activity in the first half of 2024. ### Macro-prudential and macroeconomic detail (selected policy prescriptions) - Monetary policy and sovereignty - Crypto-assets should not be granted official currency or legal tender status. - Official means of payment should be limited to public currencies issued by the state. - Central banks should avoid holding crypto-assets in their official reserve assets. - Governments should minimise fiscal and operational risks in cases of official crypto-asset use: limit official payment use, avoid convertibility guarantees, and manage fiscal operation risks with safeguards and controls. - Capital flows and CFMs - Clarify legal status of crypto-assets and ensure CFM laws cover them and are effectively enforced. - Address data gaps and leverage technology to monitor risks and implement CFMs. - If CFMs become less effective, jurisdictions may need greater exchange-rate flexibility and adjust macroeconomic policies (tighter monetary, macroprudential or fiscal policies). - Fiscal policy and tax - Identify, analyse, disclose, assess and quantify fiscal risks from crypto-assets and include them in the government's fiscal risk statement. - Ensure unambiguous tax treatment of crypto-assets (income/wealth and value-added taxes). - Strengthen tax compliance using third-party information from intermediaries and improve institutional capacity, data infrastructure and staff training. - Monitoring IMS impacts - Monitor: (i) crypto-assets’ impacts on gross and net cross-border capital flows; (ii) changes in financial intermediation, currency substitution, and international currency use; (iii) effects on exchange-rate and capital-account regimes, and CFMs; (iv) financial integrity risks; (v) demand for and supply of Global Financial Safety Net resources. ### Financial stability regulation (FSB framework and recommendations) - Principle: “same activity, same risk, same regulation.” - Two sets of FSB recommendations: - Recommendations for crypto-assets and markets (apply to any crypto-asset activity, including stablecoins and DeFi). - Separate and complementary recommendations for global stablecoins (GSCs). - FSB high-level expectations (selected) - Authorities should have appropriate regulatory powers and resources. - Apply comprehensive and effective regulation, supervision, and oversight on a functional basis, proportionate to risks. - Cooperate and coordinate domestically and internationally for information sharing and consultation. - Require comprehensive governance frameworks with clear lines of responsibility and accountability. - Require effective risk management frameworks addressing operational resilience, cyber security, AML/CFT, and “fit and proper” requirements. - Require robust data frameworks for collection, storage, safeguarding and timely reporting of data; authorities should have access to data. - Require disclosures to users and stakeholders on governance, operations, risk profiles and financial conditions. - Identify and monitor interconnections between crypto and the wider financial system and address financial stability risks. - Subject providers combining multiple functions to appropriate regulation, including separation or legal disaggregation where needed. ### Specific risks: EMDEs, stablecoins, GSCs, DeFi (Box 1 & Box 2 highlights) - EMDE incentives and vulnerabilities - Weaker monetary frameworks, higher inflation, unstable currencies incentivise currency substitution toward crypto-assets, notably foreign-denominated stablecoins. - Larger unbanked populations, lower financial development, lower financial education and higher cross-border transaction costs increase crypto-asset adoption incentives. - Greater prevalence of CFMs in EMDEs creates incentives for circumvention via crypto-assets. - EMDE challenges in mitigation - Limited regulatory capacity, lack of legal basis to regulate, less developed tax frameworks, and cross-border coordination issues. - Capacity development needs: strengthen monetary frameworks and tax compliance, improve domestic financial infrastructures, adjust CFM laws and improve data collection. - LICs may require tailored recommendations and bolder consumer protection measures. - Financial stability transmission channels - Financial sector exposures to crypto-assets, wealth effects, confidence effects, and use in payments and settlements (settlement finality, governance). - Stablecoins and GSCs - Stablecoins vulnerable to loss of confidence and runs; reserve management, governance and operational fragilities can lead to de-pegging and increased linkages to the financial system. - GSCs pose higher macroeconomic risks due to cross-jurisdictional adoption; require recovery and resolution plans, strong redemption rights, stabilisation mechanisms and prudential requirements. - DeFi - DeFi replicates traditional financial functions and inherits vulnerabilities (operational fragilities, leverage, liquidity and maturity mismatches, governance opacity). - Claims of decentralisation can obscure accountability and supervisory responsibility. - Regulatory and supervisory challenges (Box 2) - Regulatory powers and coverage gaps, opaque governance structures, cross-border cooperation shortfalls, data management and disclosure gaps, combinations of multiple functions within single providers, and specific difficulties for EMDEs. ### Market, legal, financial integrity, and environmental risks (selected data points) - Market integrity - Examples of risks: insider trading, fraud, wash trading, market manipulation, conflicts of interest, comingling of client funds, lack of client asset protection. - MEV: Estimations indicate that since 2020, total MEV has amounted to USD 635 million on just the Ethereum network. MEV increases exponentially with the augmentation of transaction number/volume.550-650 (Auer and others 2022). - Legal risks - Granting official currency or legal tender status raises complex monetary-law and accessibility challenges; internet access and technology limitations matter. - Financial integrity - Crypto-assets' pseudonymous nature, speed and global reach increase attractiveness for criminal activity (ransomware, fraud, tax evasion, money-laundering, proliferation financing, terrorist financing) (FATF 2023). - FATF reiterated need for implementation of FATF Standards and adopted a Roadmap in February 2023 to accelerate implementation. - Environmental risks - Consensus mechanisms determine energy usage: PoW (high energy, high e-waste) versus non-PoW (significantly lower energy). - Level of control over architecture (permissioned vs permissionless) affects energy controls. ### Other policy tools and targeted measures - Legal considerations - Where legal certainty is lacking, possible actions include: modernise private law with targeted reforms; clarify financial law application (enforce existing laws, amend laws, or issue bespoke laws); mitigate tax under-assessment via transparent tax law frameworks and guidance. - Financial integrity regulation - Jurisdictions should implement FATF Standards for virtual assets; license or register VASPs; require CDD, record keeping, STRs, targeted financial sanctions, and implementation of the “travel rule”. - Market integrity regulation - Jurisdictions should implement IOSCO Principles and Standards to economically equivalent crypto-assets and activities. - Additional targeted measures - Targeted or time-bound restrictions may be used where justified (resource constraints, large capital outflows, currency substitution, ML/TF risk, consumer/market risks). - Blanket bans can be costly, difficult to enforce, incentivise circumvention, raise financial integrity risks and migrate activity offshore; bans should not substitute for robust macroeconomic policies and regulation. ### Policy implementation roadmap (selected milestones and actions) - Roadmap pillars: implementation of policy frameworks; outreach beyond G20 jurisdictions; global coordination, cooperation and information sharing; addressing data gaps. - Key timelines and responsibilities: - IMF to integrate crypto-asset policies into Article IV assessments and FSAP where suitable — Timeline: 8-12 months. - IMF and World Bank to integrate comprehensive framework recommendations into technical assistance and capacity building — Timeline: 8-12 months. - IMF to prepare outreach program through IMF regional training centres — Timeline: 8-12 months. - IMF, with BIS, ECB and FSB partners, to produce test estimates of flows and stocks of crypto-assets used as means of payment — Expected milestone: by Q4 2025. - FSB to review implementation status of high-level recommendations by end-2025. - BCBS/GHOS: GHOS endorsed a global prudential standard for banks' exposures to crypto-assets in December 2022 for implementation by January 2025. - FATF: adopted Roadmap in February 2023 and will publicly identify progress steps in the first half of 2024. - Data action - G20 DGI-3 Recommendation 11 on “Digital Money”: develop common framework and collect “test data” on digital money and crypto-assets used as means of payment — Lead: IMF with BIS, ECB, and FSB — Milestone: by Q4 2025. *Source: Executive summary and selected sections (risks, policy response, roadmap, boxes and annexes) from the IMF and FSB synthesis paper on policies for crypto-assets* ### Executive summary ...................................................................................................... ### imf-fsb-synthesis-paper-policies-for-crypto-assets - Executive summary ### Purpose and scope - Objective: synthesize the IMF’s and the FSB’s (alongside SSBs’) policy recommendations and standards to provide comprehensive guidance to help authorities address macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through so-called decentralised finance (DeFi). - Note: This paper describes how the policy and regulatory frameworks developed by the IMF and the FSB (alongside SSBs) fit together and interact with each other, but it does not establish new policies, recommendations or expectations for relevant member authorities. - Scope exclusion: Central bank digital currencies (CBDCs) are not within the scope of this report. ### Key observed developments and statistics - Crypto-assets have existed since January 2009. - In 2021, the total market value of crypto-assets grew 3.5 fold. - In the crypto-asset market turmoil that started in May 2022, the total market value shrank from a peak of $2.6 trillion to below $1 trillion. - So far, only two jurisdictions have granted legal tender status to crypto-assets, and one of them rescinded that status. - The IMF sets out nine core elements of effective policies for crypto-assets (IMF 2023a). - The FATF adopted a Roadmap in February 2023 to accelerate global implementation of AML/CFT controls and supervision in the crypto-asset sector, with steps publicly identified for jurisdictions with materially important crypto-asset activity in the first half of 2024. ### Main risks and implications - Macro-financial interaction: - Widespread adoption of crypto-assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability. - Financial instability and price instability can reinforce each other, cause destabilising financial flows, and strain fiscal resources. - Market structure and volatility: - Crypto-assets have displayed significant volatility and episodes of sharp appreciation and steep price reversion. - Stablecoins can be key points of interconnectedness; vulnerability to deviation from pegs can lead to declines in market capitalisation and wider strain in crypto-asset markets. - Current connectivity and systemic footprint: - Direct connections between crypto-assets and systemically important financial institutions, core financial markets, and market infrastructures have been limited to date. - Crypto-asset markets represent only a small portion of global financial assets, but increasing connectivity could raise spillover risks to the broader financial system. - Rate of crypto-asset adoption is generally higher in EMDEs relative to AEs (Chainalysis 2022). ### Policy conclusions and overarching recommendations - Need for comprehensive policy and regulatory response: - A comprehensive policy and regulatory response is necessary to address macroeconomic and financial stability risks. - Comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks. - Macroeconomic policy actions: - To address macroeconomic risks, jurisdictions should safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility, and adopt unambiguous tax treatment of crypto-assets. - Regulatory and supervisory actions: - Regulation and supervision of licensed or registered crypto-asset issuers and service providers can support capital flow measures, fiscal and tax policies, and financial integrity requirements. - Licensed, regulated and supervised crypto-asset service providers and appropriate reporting requirements can reduce data gaps needed for monitoring cross-border transactions and capital flows. - Regulatory principle: - The FSB (along with SSBs) applies the principle of “same activity, same risk, same regulation”, establishing a minimum baseline jurisdictions should meet and addressing common issues across the majority of jurisdictions. - Financial integrity: - Jurisdictions should implement FATF AML/CFT standards that apply to virtual assets (VAs) and virtual asset service providers (VASPs). - Jurisdictions should identify and assess ML/TF risks associated with VAs and take appropriate steps to manage and mitigate those risks. - Jurisdictions and VASPs should refer to the FATF Guidance for a Risk-Based Approach to VAs to understand and effectively implement AML/CFT obligations. ### Considerations for EMDEs and targeted measures - Some jurisdictions, particularly EMDEs, may want additional targeted measures beyond the global regulatory baseline to address specific risks and should adapt these to country-specific circumstances. - Jurisdictional characteristics that may determine vulnerabilities to macro-financial risks of crypto-assets include: - (i) size of the economy and financial system, - (ii) regulatory priorities, - (iii) institutional quality and capacity, - (iv) level of financial integration into the global economy. - Implementation of targeted measures may vary by country based on unique circumstances and capacity constraints. ### Implementation roadmap and international cooperation - The IMF and the FSB, together with other IOs and SSBs, have set out a roadmap to ensure effective, flexible, and coordinated implementation of the comprehensive policy response. - The roadmap aims to: - build institutional capacity beyond G20 jurisdictions; - enhance global coordination, cooperation, and information sharing; - address data gaps necessary to understand the rapidly changing crypto-asset ecosystem. - The paper consolidates key recommendations to help authorities identify, assess, and mitigate macroeconomic and financial stability risks of crypto-assets and notes that these recommendations can be further developed by SSBs in accordance with their mandates. *Source: Executive summary, IMF and FSB synthesis paper on policies for crypto-assets* ### section is to highlight the risks that have become apparent and warrant policy responses at the ### section is to highlight the risks that have become apparent and warrant policy responses at the international level. ### 2.1. Macroeconomic stability #### 2.1.1. Monetary policy - Widespread adoption of crypto-assets could threaten the effectiveness of monetary policy. - Monetary transmission would weaken if firms and households prefer to save and invest in crypto-assets that are not pegged to the domestic fiat currency or to use them as payment instruments or medium of account (IMF 2020). - The risk of currency substitution (“cryptoization”) is particularly pertinent for countries with unstable currencies and weak monetary frameworks. - Cryptoization is more likely to be associated with the adoption of stablecoins denominated in foreign currencies which, relative to other crypto-assets, purport to offer a less volatile alternative to the domestic currency. - Granting crypto-assets official currency or legal tender status could have significant implications: - Monetary policy effectiveness would be compromised since central banks lack the ability to adjust interest rates on a foreign currency. - Widespread adoption of crypto-assets precludes importing the credibility of a foreign jurisdiction’s monetary policy and aligning the domestic economy and interest rates with the foreign business cycle. - Creditor acceptance of the crypto-asset as payment for monetary obligations (including taxes) would be required, similar to central bank currency. - If both an official currency and a crypto-asset are used for pricing goods and services, domestic prices could become highly unstable due to crypto-asset volatility. - Even if all domestic prices were quoted in a specific crypto-asset, prices of imported goods and services would still experience significant fluctuations based on market valuations of the crypto-asset. - Additional considerations for extensive crypto-asset adoption include potential bank disintermediation, reduced capacity of the banking system to attract fiat currency deposits and generate credit, undermining financial stability, and the potential for a reduction in seigniorage revenue. (footnote text preserved in source) #### 2.1.2. Fiscal policy - The spread of crypto-assets can increase fiscal risks arising from: - The financial sector’s exposure to the crypto-asset ecosystem. - Lack of clarity of tax regimes. - The cross-border nature of crypto-assets. - Crypto-assets can affect tax revenue collection and compliance, even when not adopted as legal tender: - Decentralised peer-to-peer (P2P) activities increase reliance on voluntary compliance and self-reporting. - Supervised institutions required to report crypto-related activities to tax authorities may not comply with existing regulations; some institutions may fall outside the scope of such regulations. - Implementation of the OECD’s Crypto-asset Reporting Framework across jurisdictions will support tax authorities’ efforts to collect revenues (OECD 2022a). - If crypto-assets are granted legal tender or official currency status: - Government revenues could be exposed to exchange-rate risk, especially if taxes are quoted in advance in a crypto-asset while expenditures remain mostly in another local currency. - Contingent liabilities may arise if convertibility of the crypto-asset to fiat currency is guaranteed by the government or if the financial sector becomes exposed. - Granting such status could negatively affect government social policy objectives because high volatility in the crypto-asset price could affect poor households more. - Public finances could be at risk if tax proceeds and/or spending were denominated in a volatile crypto-asset. - Bond issuance denominated in crypto-assets could put a country’s debt dynamics at risk. - Even without changing legal tender or official currency laws: - Pseudonymous crypto-assets can undermine tax revenue collection and compliance since withholding taxes and third-party information could be challenging to collect. - Differences in cross-border tax treatment of crypto-assets may open loopholes for tax avoidance. - Public financial management implications include potential impacts on the functioning of the treasury single account (TSA), government cash practices and fiscal reporting (source footnote text preserved). #### 2.1.3. Capital flows and capital flow management measures (CFMs) - Adoption of crypto-assets could erode the effectiveness of CFMs if used in cross-border transactions. - Crypto-asset trading volumes are robustly higher in countries with tighter capital controls (Furceri and others forthcoming). - CFM laws and regulations may need time to be modified to adequately address crypto-assets; enforcement may be difficult in the case of pseudonymous crypto-assets. - In some jurisdictions, certain crypto-asset activities may not involve readily identifiable intermediaries or service providers that can be held responsible to comply with CFMs (He and others 2022). - Crypto-assets could drive higher gross foreign capital positions and more volatile capital flows: - If crypto-assets achieve lower cross-border transaction costs, they may reduce frictions for investors to allocate capital across borders, increasing gross capital flows and capital flow volatility given crypto-asset price volatility and potential herding behaviour by investors across borders. - Rapid capital flight (or reversals) could materialise if foreign currency-denominated stablecoins became easier and cheaper to hold in large quantities relative to foreign currency bank accounts. - Larger gross foreign asset positions may lead to higher leverage and greater valuation effects, increasing balance of payments vulnerabilities (Obstfeld 2012). - Possible asymmetries in the evolution of gross foreign asset positions could be driven by different regulatory treatment of crypto-assets. - Widespread use of crypto-assets may lead to increased capital outflows, reducing domestic savings or diverting foreign capital that could have been invested domestically. - Forecasting net capital flow patterns related to crypto-assets requires additional analysis and improved data. - With larger and more volatile capital flows and potentially less effective CFMs, countries may find it harder to manage financial conditions and choose exchange rate regimes: - Crypto-assets do not fundamentally alter the overall view that CFMs are useful in certain circumstances but should not substitute for warranted macroeconomic adjustment (IMF 2022a). - Significant adoption of crypto-assets can result in a faster and stronger transmission of global financial conditions, complicating policy trade-offs by impairing CFM effectiveness even when CFMs are useful. - Countries managing exchange rates could be pushed towards accepting excessive capital flow volatility without full capacity to balance exchange-rate stability, monetary policy independence, and tighter financial supervision and regulation. - Emerging markets and developing economies (EMDEs) may face amplified macro-financial risks from crypto-assets. Box 1 in the source explains why. *Source: imf-fsb-synthesis-paper-policies-for-crypto-assets (selected section on risks warranting international policy responses).* ### Box 1: The case of crypto-assets and EMDEs: incentives and macro-financial risks ### Box 1: The case of crypto-assets and EMDEs: incentives and macro-financial risks ### Incentives for crypto-asset use in EMDEs - EMDEs have, on average, weaker monetary frameworks, higher inflation rates, and more unstable currencies. This reduces the ability of EMDEs’ currencies to perform the main roles of money - store of value, medium of exchange, and unit of account - incentivising currency substitution, potentially towards crypto-assets. - The share of the population that is unbanked is larger in most EMDEs; lower financial development and a lack of a diverse set of investment options might increase incentives for crypto-asset use, even among those that are banked. - Financial education is generally lower in EMDEs and so is individuals’ understanding of the potential risks of crypto-assets. - Cross-border transaction costs are typically larger for EMDEs. Crypto-assets have the potential to lower cross-border transaction costs for these countries, potentially leading to relatively larger gross balance of payment flows, and to higher valuation volatility. - Relative to AEs, emerging markets typically have in place a larger number of CFMs, which creates added incentives for crypto-asset adoption to achieve circumvention. ### Challenges EMDEs face in mitigating risks - Limited capacity and cross-border coordination issues contribute to these challenges. - Resources are required to develop oversight frameworks, establish authorisation and licensing regimes, and foster cooperation; jurisdictions with limited resources may struggle to expand authorities' scope for oversight and enforcement, leading to inconsistent implementation of standards. - In several EMDEs, regulators lack a clear legal basis for regulating crypto-assets, complicating information gathering and efforts to promote change. - Many EMDEs have less developed tax frameworks, and tax authorities may have lower capacity to enforce compliance, making it particularly challenging to prevent tax avoidance through use of crypto-assets. - Cross-border coordination challenges are compounded by the global nature of operations, foreign ownership, and opaque governance arrangements of many crypto-asset intermediaries. ### Policy implications and capacity development needs - The particularly strong risks faced by EMDEs related to crypto-asset use underscore the importance of implementing the sound economic policies and frameworks discussed in section 3. - Due to a lower initial level of state and institutional capacity, as well as potentially more limited fiscal space, EMDEs may benefit from capacity development and policy advice provided by international institutions, including the IMF and the World Bank. - Capacity development could help with: - the strengthening of monetary frameworks and tax compliance, - improving domestic financial infrastructures, - counteracting the erosion of CFMs through adjusted CFM laws and improved data collection. - International institutions can also help provide fora for improved collaboration on cross-border information sharing. - Low-income countries (LICs) might require tailored recommendations: factors such as low public financial literacy, limited monetary and financial developments, higher dependence on remittances, and concerns over the credibility of the domestic currency may incentivise unsophisticated consumers to turn to crypto-assets as savings vehicles; given LICs' vulnerability to crypto price shocks, it may be prudent to consider voicing the need for bolder consumer protection measures. ### Financial stability transmission channels and ecosystem vulnerabilities - Crypto-asset markets and the ecosystem are changing rapidly and could, if they grow and become more interconnected with the traditional financial system, reach a point where they represent a threat to global financial stability. - Vulnerabilities in crypto-asset markets are similar to those in traditional finance (leverage, liquidity and maturity mismatch, operational and technological fragilities, interconnectedness) and may be exacerbated by weak governance, non-compliance with existing rules, and activities outside the regulatory perimeter. - The IMF and the FSB have identified the following potential financial stability transmission channels: - Financial sector exposures to crypto-assets: Volatility and risk contagion may be transmitted to the wider financial system through direct or indirect exposures of financial institutions to crypto-assets. For example, when crypto-asset investors suffer large losses, they may be forced to sell traditional financial assets to manage their liquidity positions. - Wealth effects: If the breadth of crypto-asset investors were to increase, adverse asset value fluctuations could have correspondingly larger knock-on effects on the wider financial system and economy. For example, faced with large losses, retail investors in crypto-assets could curtail spending or reduce their investments in other assets. - Confidence effects: Widespread holdings of crypto-assets by retail investors with limited knowledge of how the market functions could result in adverse confidence effects if there were to be market disruptions. This could be made worse should crypto-asset issuers and service providers fail to comply with applicable investor-protection requirements and recovery and resolution frameworks. - Use in payments and settlements: If crypto-assets are adopted widely as a payment instrument (including as a settlement asset), their interaction with the financial system and the broader economy could contribute to faster and more material shock transmission in the event of market stress. Furthermore, permissionless blockchains present some characteristics that could pose financial stability risks, notably related to settlement finality and governance. This channel could be particularly pronounced in some EMDEs where crypto-assets have become a prevalent payment instrument. ### Stablecoins, GSCs, and DeFi: specific risks - Stablecoins: - The purported stability of stablecoins could enhance interconnectivity between crypto-asset markets, traditional financial institutions, and retail market participants. - Stablecoins are vulnerable to distinct risks due to their intended stability and the mechanisms stablecoin issuers claim they use to maintain stable values; they are notably vulnerable to sudden loss of confidence, similar to bank runs. - Traditional financial risks – market, liquidity and credit risks – may be more acute and complex in a stablecoin arrangement depending on, among other things, the choice and management of the stablecoin reserve assets. - Fragilities in governance, design, and reserve management could lead a stablecoin to de-peg; operational incidents in key parts of a stablecoin arrangement may result in failure to maintain a stable value. - Different activities within a stablecoin arrangement, such as reserve management, may considerably increase linkages to the existing financial system and create run risk. - Global Stablecoins (GSCs): - A GSC is a stablecoin distinguished by its potential reach and adoption across multiple jurisdictions. - Macroeconomic risks associated with GSCs may be higher than for other stablecoins, particularly if households and businesses in some economies come to hold substantial portions of their wealth in GSCs rather than in local currencies. - Uncertainty about, or large fluctuations in, the value of instruments used as settlement assets in systemic payment or securities settlement systems could give rise to risks to financial stability associated with the operational or financial failure of the payment or settlement system itself. - DeFi: - DeFi performs functions similar to the traditional financial system and inherits vulnerabilities including operational fragilities, liquidity and maturity mismatches, leverage and interconnectedness. - Claims of decentralisation often do not hold up to scrutiny; DeFi may exhibit unclear, opaque, untested or easy-to-manipulate governance frameworks that may expose users to risks. *Source: imf-fsb-synthesis-paper-policies-for-crypto-assets (Box 1).* ### Box 2: Regulatory and supervisory issues and challenges ### Box 2: Regulatory and supervisory issues and challenges ### Regulatory powers and coverage - Crypto-assets can pose challenges to legal, regulatory, and enforcement frameworks. - In some jurisdictions, crypto-asset activities are conducted in non-compliance with applicable domestic regulations and may lead to enforcement and supervisory challenges for authorities. - In some other jurisdictions, crypto-assets may fall outside of the existing regulatory perimeter, leading to regulatory gaps. ### Governance - Many organisers of crypto-asset activities structure themselves in ways that result in opaque governance in an attempt to evade regulation and accountability. - Regulators may face challenges in identifying the entity responsible for the actual governance. - Challenges can be more pronounced within the DeFi ecosystem. - Some stablecoin arrangements purport to apply a decentralised governance structure that potentially gives rise to challenges in identifying the entity that exercises actual control over the governance. ### Cross-border cooperation - Crypto-assets are regulated differently across jurisdictions. - Crypto-asset issuers and service providers could migrate to places where regulation is lighter. - Existing regulatory cooperation arrangements may not effectively capture all aspects of a specific crypto-asset activity. - This may amplify contagion when a crypto-asset service provider is in distress or failure. ### Data management and disclosure - Data gaps are a key concern in the regulation, supervision and oversight of crypto-assets. - Some entities do not disclose or report reliable data in compliance with existing requirements. - Many crypto-asset service providers extensively conduct activities “off-chain”, meaning that a large part of the relevant data is neither publicly available on blockchains nor properly disclosed. - On-chain data is typically pseudonymous and may be difficult to interpret. - In some cases, regulated traditional financial entities lack specific reporting requirements concerning their participation in crypto-asset activities. ### Combination of multiple functions within a single service provider - Crypto-asset service providers often combine a wide range of functions, including trading platform, custody, brokerage, lending, deposit gathering, market-making, settlement and clearing, issuance, distribution, and promotion. - The combination of functions poses additional risks originating from mutual reinforcement and interaction of individual risks and may give rise to conflicts of interest. - In certain jurisdictions, some combinations of functions are not permitted or are subject to special regulatory regimes. - Without appropriate controls, crypto-asset service providers that combine certain functions could become key central points for amplifying and transmitting risks. - The combination of various activities could support the growth of such providers, and if they became sufficiently large, could represent a single-point of failure with implications from a systemic risk perspective. ### Regulatory and supervisory challenges for EMDEs - EMDEs could face particular regulatory and supervisory challenges when implementing their policy frameworks with respect to crypto-assets. - EMDEs often face capacity constraints that lead to limitations in ensuring adequate regulatory resources, including regular monitoring, policy formulation, proportionate supervision and enforcement, and sufficient coordination across borders. - Some EMDEs may act as “hosts” to crypto-asset service providers and stablecoin arrangements, and residents in EMDEs may rely on exchange and custody functions from cross-border crypto-asset service providers. - This dynamic could put greater pressure on effective cross-border regulatory and supervisory coordination and cooperation arrangements. - Example: capital controls imposed on the traditional banking and payments sector through local licensing or subsidiarisation requirements (e.g., onshore banks or payments providers) may be more easily evaded by inadequately regulated cross-border crypto-asset service providers and stablecoin arrangements offering services from offshore or virtual locations. - EMDEs could face challenges obtaining adequate information to monitor financial stability risks from crypto-asset service providers and stablecoins operating or used by residents in their jurisdiction. - The FSB is exploring how to address the cross-border risks specific to EMDEs posed by GSCs. ### Other risks #### 2.3.1. Legal risks - If crypto-assets are granted official currency or legal tender status, they could raise significant macro-critical legal issues.19 - Legal tender status is often given to means of payment that are widely accessible like physical currency; internet access and technology needed to transfer crypto-assets remains scarce in many countries, raising practical challenges over the accessibility of crypto-assets. - The official monetary unit must be sufficiently stable in value to facilitate its use for medium- to long-term monetary obligations.20 - Changes to a country’s legal tender status and monetary unit typically require complex and widespread changes to monetary law to avoid creating a disjointed legal system. - The varying legal treatment of crypto-assets across jurisdictions may lead to potential legal risks. Uncertainties in some jurisdictions in the application of private laws (e.g., insolvency law) and financial laws could result in the parties to a crypto-asset arrangement facing risks unforeseen at the time of the transaction.21 - Efforts by crypto-asset service providers and issuers to seek to take advantage of these uncertainties may amplify the risks. - Regulatory authorities may face legal challenges in their enforcement actions. - Legal risks, including conflict-of-law challenges, are heightened in cross-border transactions due to differences in the legal treatment of crypto-assets across countries. #### 2.3.2. Financial integrity - Due to their claimed pseudonymous nature, speed, global reach, and evidence of weak implementation of relevant AML/CFT requirements, crypto-assets can be attractive to criminals, raising financial integrity risks. - Crypto-assets can be misused to commit a range of crimes (e.g., ransomware, fraud, tax evasion, money-laundering, financing the proliferation of weapons of mass destruction, and terrorist financing) (FATF 2023). - Although most distributed ledger technology (DLT) networks transactions purport to be public and therefore visible, linking an address or wallet to an individual can be challenging and resource-intensive. - The speed of transactions and borderless nature provide opportunities for criminals to quickly exchange between different crypto-assets and transfer funds across borders. - Crypto-asset providers can market their activities globally and choose to operate from jurisdictions with weak (or non-existent) AML/CFT frameworks. - The borderless nature of crypto-assets heightens financial integrity risks; crypto-assets can be easily accessed and used to make cross-border payments and commonly rely on complex infrastructures spread across several jurisdictions. - This segmentation of services can make AML/CFT supervision and enforcement challenging, because many components of the crypto-asset system, such as “exchanges” and trading platforms, are created or located in jurisdictions that have not implemented AML/CFT regulations for crypto-assets in line with the FATF Standards.22 - Anonymising services (“mixers” and “tumblers”) and anonymity-enhanced crypto-assets can make it more difficult to trace and attribute transactions using public blockchain data. - Risks posed by DeFi and peer-to-peer (P2P) transactions could increase if such channels are mass-adopted and more commonly used for payments. - For DeFi, some jurisdictions report challenges in identifying specific natural or legal persons responsible for VASP obligations in DeFi arrangements, complicating effective supervision and enforcement of covered DeFi arrangements. - For P2P transactions, the lack of intermediaries means the traditional approach to AML/CFT regulation—imposing requirements on a private sector entity and monitoring by supervisors—cannot be applied. - Criminals will continue to target perceived weaknesses in AML/CFT frameworks as new illicit financing typologies emerge. - Without implementation of regulation and enforcement in line with the FATF Standards (notably through effective regulation of VASPs or enforcement of a prohibition on all or certain VA activities), criminals will continue to exploit gaps created by inconsistent or weak AML/CFT frameworks, and crypto-assets could become an even greater threat to the integrity of the global financial system. - To limit these opportunities, crypto-asset service providers should be licensed or registered and comply with all applicable requirements. - Even when standards are effectively implemented, regulators will need to actively monitor market developments and emerging vulnerabilities, as well as assess illicit finance risks. - Financial integrity is also relevant to financial stability: in traditional financial sectors, money laundering, terrorist financing, and various other forms of financial abuse may undermine domestic or balance of payments stability. - While such impacts have not been studied specifically in relation to crypto-assets, the same underlying factors are relevant (IMF 2019b): the actual or perceived failure of a crypto-asset trading platform to deal effectively with ML or TF can impact its relationships and access to other platforms across both the crypto-asset and traditional finance space. - Systemic misuse of a jurisdiction’s financial system for ML and TF may be an indicator of underlying problems such as weak financial sector supervision, which can negatively affect financial stability. #### 2.3.3. Market integrity - Non-compliance with or lack of regulation for crypto-asset activities can impair market integrity and the interests of market participants. - Common market integrity concerns include insider trading, fraud, wash trading, market manipulation, conflicts of interest arising from vertical integration of activities, comingling of client funds, lack of client asset protection in custody or any activities involving the safeguarding of clients, and lack of fair access, suitability, and distribution to retail customers.23 - Examples of fraud and manipulation are prevalent within crypto-asset markets. - On distributed ledgers, users can set the fees for their own transactions to rank higher in the settlement queue and obtain financial gains. - Validators’ ability to arbitrarily include, exclude, or re-order transactions within the blocks they produce (so called maximal extractable value - MEV) can lead to profits for them and losses to parties involved in the crypto-asset transfers. - Certain forms of MEV are the result of practices that if adopted with regard to financial securities would be illegal in certain jurisdictions.24 - Estimations indicate that since 2020, total MEV has amounted to USD 635 million on just the Ethereum network. MEV increases exponentially with the augmentation of transaction number/volume.550-650 (Auer and others 2022). - Large validators could congest the blockchain with artificial trades (Bains 2022), raising the fees that other users pay them (Aramonte, Huang, and Schrimpf 2021). - The illiquidity of certain exchanges or crypto-assets may facilitate price manipulations; some participants may seek to trigger liquidations by other parties and create opportunities to purchase liquidated collateral at a discounted price or short the collateral asset (Werner and others 2021).25 - Crypto-asset networks can give rise to competition issues: network effects and economies of scale increase the likelihood of concentration risks and potential abuses of market power. - Example reference: FTX is a major crypto-asset trading platform that collapsed in November 2022, filed for bankruptcy and insolvency in the United States and in the Bahamas, and had contagion effects throughout crypto-asset markets; spillovers to wider financial markets were limited but losses to investors and the broader crypto-asset ecosystem were significant.23 #### 2.3.4. Environmental risks - Two design elements of the supporting distributed ledger network have key implications for the energy consumption of crypto-assets: - Consensus mechanism used for network agreement: energy needs range from vastly high in proof-of-work (PoW) algorithms like Bitcoin to significantly lower in non-PoW mechanisms. Crypto-assets based on PoW consensus mechanisms are highly energy intensive and generate large amounts of electronic waste (De Vries and Stoll 2021).26 - Level of control over the underlying architecture (number and location of nodes, participant roles, and code updates): permissioned networks offer stronger controls on parameters influencing energy consumption compared to permissionless systems. *Source: imf-fsb-synthesis-paper-policies-for-crypto-assets — Box 2: Regulatory and supervisory issues and challenges* ### 3. Comprehensive policy and regulatory response ### 3. Comprehensive policy and regulatory response ### Overview - This paper does not introduce new policies, recommendations, or expectations for member authorities; it draws upon existing policy recommendations and guidelines from the IMF, FSB, IOs and SSBs. - Effective policy framework elements: macro-financial policies, financial regulation, and additional policy and regulatory considerations addressing legal risks, financial integrity, market integrity, and investor protection. - Concluding focus: additional policy considerations for targeted measures for jurisdictions with heightened macroeconomic risks (such as some emerging markets and developing economies). ### 3.1. Macro-economic stability policies - Objective: limit substitution into crypto-assets and safeguard monetary sovereignty and stability. 3.1.1. Safeguard monetary sovereignty and stability - Key points: - Robust macroeconomic policies and credible institutional frameworks are fundamental to protect monetary sovereignty; weak MPFs combined with fiscal deficits and pressures for central bank financing undermine monetary credibility and instigate currency substitution. - An effective monetary-policy framework (MPF) safeguards monetary sovereignty through transparency, coherence and consistency; it encompasses policy design, implementation, communication and legal foundations for central bank independence. - Avoiding large deficits and high debt levels is important to protect monetary sovereignty, especially when MPFs are weak; pressure on central banks to finance deficits instead of tightening policy can lead to inflationary consequences and increase pressures toward currency substitution, which could encourage the use of crypto-assets as means of payment. - Policy prescriptions: - Crypto-assets should not be granted official currency or legal tender status. - Official means of payment should be limited to public currencies issued by the state. - Central banks should avoid holding crypto-assets in their official reserve assets. - Governments should minimise fiscal and operational risks in cases of official crypto-asset use: limit official payment use, avoid convertibility guarantees, and manage fiscal management operation risks with safeguards and controls. 3.1.2. Guard against excessive capital flow volatility - Key points: - Authorities should counter potential erosion of CFMs caused by adoption of crypto-assets by: - Clarifying legal status of crypto-assets where necessary and ensuring CFM laws cover them and are effectively enforced. - Addressing data gaps and leveraging technology to monitor risks and implement CFMs more effectively. - If CFMs become less effective due to crypto adoption, jurisdictions may need greater exchange-rate flexibility, balancing monetary autonomy, exchange rate stability and financial openness. - Managing increased risks of capital outflows may involve adjusting international reserves and macroeconomic policy adjustments (tighter monetary, macroprudential or fiscal policies). 3.1.3. Address fiscal risks and adopt unambiguous tax treatment - Key points: - Fiscal risks from widespread crypto adoption (including from granting legal-tender or official currency status) should be identified, analysed, disclosed, assessed and quantified where possible, and monitored in a timely manner. - Risks to public finance should be included in the government's fiscal risk statement to promote fiscal transparency. - Tax policy prescriptions: - Ensure unambiguous tax treatment of crypto-assets (income/wealth and value-added taxes). - Tax administrations should strengthen compliance efforts and leverage third-party information from intermediaries (crypto-asset trading platforms, broker-dealers, other intermediaries) to enhance tax compliance. - Collaborate on cross-border information sharing and financial regulation; adoption of frameworks like the Crypto-asset Reporting Framework (CARF) proposed by the OECD (2022b) can be beneficial. - Improve institutional capacity, invest in specialised data infrastructure and analytics, and prioritise training for tax administration staff. 3.1.4. Monitor the impact of crypto-assets on the International Monetary System (IMS) - Key points: - Crypto-assets could amplify vulnerabilities and pose new risks to global financial stability and the IMS. - The IMF’s role: ensure stability and efficiency of the IMS via multilateral and bilateral surveillance, capacity development, and lending; assess macrofinancial and spillover risks from crypto-assets. - Areas for close and ongoing monitoring include: - (i) crypto-assets’ impacts on gross and net cross-border capital flows; - (ii) changes in financial intermediation, currency substitution, and international currency use; - (iii) effects on exchange-rate and capital-account regimes, and capital flow management measures; - (iv) financial integrity risks; - (v) demand for and supply of Global Financial Safety Net resources. - Ongoing analysis, review of rules (including the IMF’s Institutional View on Liberalization of Capital Flows as may be required), and monitoring are imperative to inform regulation and cross-border cooperation. ### 3.2. Financial stability regulation 3.2.1. The FSB’s global framework for crypto-asset activities - Key points: - The FSB recommendations (set out in Annex 2) provide a global framework for effective regulation, supervision and oversight of crypto-asset activities and markets and global stablecoin arrangements. - Framework principle: “same activity, same risk, same regulation.” - The FSB framework comprises two distinct sets of recommendations: - Recommendations for crypto-assets and markets apply to any crypto-asset activity, including stablecoins and DeFi. - Separate and complementary recommendations for global stablecoins (GSCs) that could be widely used across multiple jurisdictions and pose particular risks. 3.2.2. The FSB’s high-level recommendations for crypto-assets - Key recommendations: - Authorities should have appropriate regulatory powers and apply comprehensive and effective regulation, supervision, and oversight requirements, proportionate to risks and consistent with international standards and mandates. - Authorities should cooperate and coordinate domestically and internationally to foster efficient communication, information sharing, and consultation. - Crypto-asset issuers and service providers should have comprehensive governance frameworks with clear lines of responsibility and accountability. - Effective risk management frameworks must address material risks including operational resilience, cyber security safeguards, AML/CFT measures, and “fit and proper” requirements. - Robust data frameworks are needed for collecting, storing, safeguarding and timely and accurate reporting of data; authorities should have access to data as appropriate. - Users and relevant stakeholders should receive comprehensive, clear and transparent information about governance, operations, risk profiles and financial conditions. - Authorities should identify and monitor interconnections within the crypto ecosystem and between it and the wider financial system and address financial stability risks. - Providers combining multiple functions should be subject to appropriate regulation addressing risks from combined functions, including conflicts of interest; where combinations are not permitted, apply legal disaggregation and separation measures. 3.2.3. The FSB’s high-level recommendations for GSCs - Key recommendations: - Implement international sectoral standards applicable to specific economic functions performed by GSCs; authorities should implement those international standards where they apply. - GSC recommendations are complementary to crypto-asset recommendations but reflect particular risks and heightened regulatory and supervisory requirements. - Authorities should use appropriate regulatory powers to provide comprehensive oversight of GSC activities and functions, promote cross-border cooperation and information sharing, robust data frameworks, and effective risk management frameworks. - GSC arrangements should have appropriate recovery and resolution plans to support recovery, resolution, or orderly wind down under applicable legal (or insolvency) frameworks. - GSC issuers and participants should provide users and stakeholders with comprehensive and transparent information on governance, conflicts of interest and their management, redemption rights, stabilisation mechanisms, operations, risk management, and financial condition. - GSC arrangements should be subject to robust redemption rights, stabilisation, and prudential requirements to maintain stable value and mitigate run risk; require legal claim to users against issuer and/or underlying reserve assets and guarantee timely redemption. For GSCs referenced to a single fiat currency, redemption should be at par into that fiat currency. ### 3.3. Other policies and regulation 3.3.1. Legal considerations - Where legal certainty is lacking, jurisdictions should consider three non-mutually exclusive actions (possibly involving law reforms developed with private sector involvement and aligned with international organisations' guidance): - Modernise private law through targeted legislative reforms where necessary to clarify classification of crypto-assets and rules governing transactions; targeted amendments often preferable to wholesale overhauls. - Clarify financial law application and treatment of crypto-assets where necessary via various approaches: - Enforce existing legal and regulatory frameworks when crypto-asset activities fall within established legal categories (e.g., securities laws). - Amend existing laws to explicitly cover crypto-asset activities or issue bespoke laws on crypto-assets (e.g., the EU’s Markets in Crypto-Assets regulation) or on fintech. - Mitigate under-assessing or under-collecting tax on crypto transactions by establishing transparent and predictable tax law frameworks, complemented with timely and comprehensive guidance to taxpayers and clarified payment and reporting obligations, including by crypto-asset service providers. 3.3.2. Financial integrity regulation - Key points: - Jurisdictions should implement the FATF Standards in the virtual-asset sector to protect against money laundering, terrorist financing and proliferation financing. - Consistent with FATF Standards on virtual asset service providers (2019), jurisdictions should assess ML/TF risks, license or register VASPs, and supervise the sector as they supervise other financial institutions. - VASPs should implement risk mitigation measures: customer due diligence, record keeping, suspicious transaction reporting, targeted financial sanctions, and apply the “travel rule” to obtain, hold and securely transmit originator and beneficiary information when making transfers. - FATF adopted revised guidance for a risk-based approach to virtual assets in 2021 to help jurisdictions implement FATF Standards. - The borderless nature of crypto limits effectiveness of national regulation; inconsistent FATF implementation creates regulatory arbitrage. - FATF adopted a roadmap in February 2023 to accelerate global implementation of AML/CFT controls and supervision in the crypto-asset sector. - The IMF should continue advising members on crypto-related financial integrity issues in surveillance, lending, assessment work, and support implementation through capacity building. 3.3.3. Market integrity regulation - Key point: - Jurisdictions should implement and apply the IOSCO Principles and Standards to economically equivalent crypto-assets and activities to address market integrity and investor protection risks (conflicts of interest, client asset protection, market manipulation, operational risk, retail access suitability, cross-border issues, among others). 3.3.4. Additional targeted measures - Key points and considerations: - Authorities might consider targeted or time-bound broad restrictions to manage crypto risks, but blanket bans on all crypto activities can be costly, technically demanding to enforce, incentivise circumvention, increase financial integrity risks, create inefficiencies, and cause activity to migrate across borders. - Decision to ban should be informed by assessment of ML/TF risks, potential large capital outflows and other public policy aims. - Targeted restrictions may be justified for resource-constrained authorities or to support regulatory frameworks when facing large capital outflows, significant currency substitution, unacceptable ML/TF risk, or risks to consumers and markets. - Examples of targeted restrictions: product-targeted (e.g., privacy tokens), activity-targeted (e.g., payments restrictions in some jurisdictions), entity-targeted (e.g., bank prohibitions in some jurisdictions). - Targeted or temporary restrictions should be part of a larger policy response and not substitute for robust macroeconomic policies, credible institutional frameworks, and comprehensive regulation and oversight, which are the first line of defence. *Source: IMF/FSB authors — 3. Comprehensive policy and regulatory response* ### 4. Policy implementation roadmap ### 4. Policy implementation roadmap ### Roadmap purpose and pillars - Objective: ensure effective, flexible, and coordinated implementation of the comprehensive policy framework for crypto-assets. - Roadmap components: - Implementation of policy frameworks; - Outreach beyond G20 jurisdictions; - Global coordination, cooperation, and information sharing; - Addressing data gaps. - Reporting: Progress should be reported to the Finance Ministers and Central Bank Governors (FMCBG) meetings along with FATF on AML/CFT. ### Table of actions, responsible organisations, and timelines (high-level) - Implementation of policy frameworks - FSB policy work on DeFi and multifunction crypto-asset intermediaries — Responsible: FSB — See Annex 3 - SSBs continue to examine how their standards apply to crypto-assets and stablecoin arrangements — Responsible: SSBs — See Annex 3 - Monitoring of risks posed by crypto-assets and stablecoin arrangements — Responsible: IMF, FSB, SSBs — Ongoing, See Annex 3 - Implementation of FATF standards for virtual assets — Responsible: FATF — See Virtual Assets: Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers (FATF 2023) - IMF to integrate crypto-asset policies into Article IV assessments and FSAP where suitable — Responsible: IMF — Timeline: 8-12 months - IMF and World Bank to integrate recommendations for a comprehensive framework for crypto-assets as part of technical assistance and capacity building — Responsible: IMF, World Bank — Timeline: 8-12 months - Outreach beyond G20 jurisdictions - IMF and FSB to engage with a wider set of jurisdictions — Responsible: IMF and FSB — Ongoing - IMF to prepare a program for outreach through IMF regional training centres — Responsible: IMF — Timeline: 8-12 months - FATF support, guidance, and training for countries where implementation is lagging; publicly identify steps taken to implement the standard in jurisdictions with materially important crypto-asset activity — Responsible: FATF — See Virtual Assets: Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers (FATF 2023) - Global coordination, cooperation, and information sharing - FSB to continue to act as a hub for information sharing and regulatory and supervisory coordination for crypto-asset activities and global stablecoin arrangements — Responsible: FSB, together with all IOs and SSBs — Ongoing - Cross-border regulatory coordination for GSCs in EMDEs — Responsible: FSB — See Annex 3 - Authorities’ responsibilities for stablecoin arrangements under the Principles for Financial Market Infrastructure (PFMI) — Responsible: CPMI-IOSCO — See Annex 3 - Addressing data gaps - IMF, with support of other IOs and SSBs, to develop a common framework for addressing data gaps and collect “test data” on crypto-assets — Responsible: IMF — Timeline: By end-2025 ### 4.1 Implementation of policy frameworks by IO and SSB members — key actions and timelines - FSB - Will promote implementation of its high-level recommendations endorsed by G20 in July 2023. - Will, by end-2025, conduct a review of the status of implementation of the two sets of high-level recommendations at the jurisdictional level. - Will consider whether additional guidance or recommendations are necessary, taking into account relevant international sectoral standards and guidance by SSBs. - Conducting follow-up policy work on regulatory implications of DeFi, multifunction crypto-asset intermediaries, and cross-border coordination and cooperation specific to EMDEs. - Will continue to assess implications of crypto-assets for financial stability through ongoing monitoring, analysis of emerging themes or material incidents, and deep dives. - IMF - Will continue assessing macroeconomic implications and risks of crypto-assets, including considerations specific to EMDEs. - Will develop, over time, an impact analysis on potential implications for the international monetary system. - Will integrate crypto-asset policies and recommendations into its surveillance program (Article IV assessments and FSAP) where suitable — implementation to be evaluated when crypto-assets fall within the scope of these programs. - Will integrate crypto-asset policy work into capacity building programs and provide training and technical support subject to members’ demand and available resources. - SSBs - Will examine how their standards apply to crypto-assets and stablecoin arrangements and make revisions or provide detailed guidance as needed. - Have developed a shared workplan for 2023 and beyond to coordinate work and provide more granular guidance and monitoring (see Annex 3). - Specific sectoral and standard-setting actions and milestones - IOSCO: established a Board-level Fintech Taskforce (FTF) in March 2022; published a consultation report for Crypto and Digital Assets in May 2023 aiming to finalise policy recommendations in early-Q4 2023; FTF DeFi workstream to publish a consultation report with proposed recommendations in Q3 2023. - CPMI-IOSCO: analysing issues for multicurrency or asset-linked stablecoins and potential additions/clarifications to the PFMI guidance (Application of PFMI to stablecoin arrangements, published July 2022). - BCBS/GHOS: GHOS endorsed a global prudential standard for banks' exposures to crypto-assets in December 2022 for implementation by January 2025; GHOS tasked the BCBS with continuing to assess bank-related developments in crypto-asset markets. - FATF: adopted a Roadmap in February 2023 to accelerate implementation of the Standards; published a Targeted Update on implementation of the FATF standards on virtual assets in June 2023; expects to publish a table in the first half of 2024 setting out progress; will carry out in-depth reviews with IMF and other assessment bodies to analyse implementation and effectiveness of ML/TF measures. ### 4.2 Outreach beyond G20 members — approach and activities - FSB members to lead by example implementing the FSB framework fully and timely to encourage broader uptake. - IMF actions leveraging near-global membership: - Encourage implementation of FSB high-level recommendations and SSB standards through capacity development activities and FSAP. - Prepare an outreach program through IMF regional training centres to promote IMF and FSB recommendations — Timeline: 8-12 months to prepare program. - IMF training centres cited include ATI, CEF, JVI, SARTTAC, BTC (Joint Regional Training Centre for Latin America). - FSB activities for non-FSB jurisdictions: - Engage with a wider set of jurisdictions to encourage implementation of FSB recommendations. - Take stock of regulatory progress and challenges among non-FSB member jurisdictions through the FSB’s Regional Consultative Groups. - Monitor and assess cross-border issues related to stablecoins and other crypto-assets. - FATF: will identify jurisdictions with materially important crypto-asset activity and target support and advice to jurisdictions where implementation is lagging. ### 4.3 Global coordination, cooperation and information sharing - FSB to remain the hub for information sharing and regulatory and supervisory coordination for crypto-asset activities and global stablecoin arrangements. - FSB will explore addressing cross-border risks specific to EMDEs and consider how to handle stablecoin arrangements operating in jurisdictions lacking robust regulatory and supervisory frameworks aligned with FSB recommendations. - FSB and SSBs’ shared workplan reflects coordinated cross-sectoral international response through granular guidance, monitoring, and public reporting. - IMF to coordinate with members to promote IMF and FSB frameworks (including SSB standards and guidance) and continue monitoring macrofinancial risks and vulnerabilities in crypto-assets. ### 4.4 Addressing data gaps — DGI-3 and statistical actions - Challenge: scarce data to measure crypto-assets and their impacts (cross-border usage, currency substitution, rapid cryptoization affecting monetary independence and financial stability). - G20 DGI-3 welcomed in November 2022 addresses priority policy needs related to financial innovation. - Recommendation 11 of DGI-3 on “Digital Money”: - Aim: develop a common framework and collect “test data” on digital money and crypto-assets used as a means of payment enabled by Fintech. - Intended outcome: expand macroeconomic statistics (monetary and external-sector statistics) to cover crypto-assets including stablecoins, to properly measure monetary aggregates and international capital flows and provide inputs for financial stability analysis. - Lead and partners: IMF leads implementation with BIS, ECB, and FSB. - Expected milestone: by Q4 2025, test estimates of flows and stocks of crypto-assets used as means of payments, broken down by type, sector, and counterpart country. - Methodology and data sources: - Work will draw on methodological guidance from the update of international statistical standards (ISS) (FITT 2022). - Task Team will explore alternative sources and partnerships with industry players to gather data on crypto-assets as payment methods. - G20 discussions could facilitate collaboration between statistical agencies and regulatory bodies to influence regulatory data requirements for crypto-assets. *Source: IMF–FSB synthesis paper, "Policies for Crypto-Assets" — Section 4: Policy implementation roadmap.* ### Annex 1: Recent publications from international organisations and ### Annex 1: Recent publications from international organisations and standard-setting bodies ### IMF publications - In February 2023, the IMF proposed Elements for effective policies for crypto-assets (IMF 2023a). - The paper aims to address IMF members’ questions on how to respond to the rise of crypto-assets and the associated risks. - It defines and classifies crypto-assets based on their underlying features and describes their purported benefits and potential risks. - The paper presents a policy framework for crypto-assets that aims to achieve key policy objectives such as macroeconomic stability, financial stability, consumer protection, and market and financial integrity. - The framework outlines nine key elements that are necessary to ensure that these objectives are met. - IMF delivered a G20 Note on the Macrofinancial Implications of Crypto-assets (IMF 2023b). - The paper focuses on unbacked crypto-assets, such as bitcoin, and stablecoins, which may have stark implications for macrofinancial stability if widely adopted. - It limits the analysis to potential costs and benefits as well as raises open questions and data needs, with the intention to spur further discussion on policy responses. - It considers three types of implications: (1) domestic stability, (2) external stability, and (3) the structure of financial systems. - The paper argues that purported benefits of crypto-assets include cheaper and faster cross-border payments, more integrated financial markets, and increased financial inclusion, but these are yet to be realised. - The underlying technologies could prove useful, including for the public sector. ### FSB, BIS, FATF, and other international standard-setting bodies - In February 2022, the FSB published its Assessment of Risks to Financial Stability from Crypto-assets (FSB 2022a). - The report examines developments and associated vulnerabilities relating to three segments of the crypto-asset markets: unbacked crypto-assets (such as Bitcoin); stablecoins; and DeFi and other platforms on which crypto-assets trade. - The report notes that although the extent and nature of the use of crypto-assets varies somewhat across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses. - In July 2022, against the backdrop of the May 2022 turmoil in crypto-asset markets, the FSB issued a statement reaffirming that crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level (FSB 2022b). - In July 2023, the FSB finalised a comprehensive framework for the international regulation of crypto-asset activities from a financial risk perspective (FSB 2023b). - The core components of this framework are recommendations that promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto-asset activities and markets and that strengthen international cooperation, coordination and information sharing and revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements to address associated financial stability risks more effectively. - In July 2023, the Bank for International Settlements delivered to G20 a report on analytical and conceptual issues and proposed possible risk mitigation strategies related to crypto-assets (BIS 2023). - In June 2023, the FATF adopted a targeted review of implementation of the FATF’s Standards on Virtual assets and Virtual asset service providers, including the Travel Rule, and an update on emerging risks and market developments in this area. - The report finds that global implementation of these strengthened measures remains relatively poor. - The lack of regulation creates significant loopholes for criminals to exploit. - Closing the gaps in global regulation of virtual assets is an urgent priority, to be addressed through the FATF’s Roadmap. - The international standard-setting bodies have taken forward more granular analytic and policy work by exploring issues unique to each SSB’s mandate: - In March 2022, IOSCO published a detailed report setting out how DeFi is quickly evolving to mirror conventional financial markets (IOSCO 2022). - The report offers a comprehensive review of the fast-evolving DeFi market, including its products, services and principal participants. - It identifies some aspects that are novel, but concludes that most DeFi products, services and activities replicate more traditional financial products, services and activities, but with participants acting outside of, or in non-compliance with applicable regulatory frameworks, creating risks for investors. - Following the IOSCO report, in February 2023, the FSB published a report on the financial stability risks of DeFi (FSB 2023a). - The report concludes that while the processes to provide services are in many cases novel, DeFi does not differ substantially from traditional finance in the functions it performs or the vulnerabilities to which it is exposed. - The extent to which these vulnerabilities can lead to financial stability concerns largely depends on the interlinkages and transmission channels between DeFi, traditional finance and the real economy. - To date, these interlinkages are limited. However, if the DeFi ecosystem were to grow significantly, then the scope for spillovers would increase. - The report identifies indicators that can be used to monitor DeFi vulnerabilities and transmission channels. - In July 2022, the CPMI-IOSCO published their guidance on the application of the PFMI to systemically important stablecoin arrangements (CPMI-IOSCO 2022). - In December 2022, the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, endorsed a finalised prudential standard on banks' crypto-asset exposures. - The standard provides a robust and prudent global regulatory framework for internationally active banks' exposures to crypto-assets that promotes responsible innovation while preserving financial stability. - In May 2023, IOSCO issued for consultation detailed policy recommendations to jurisdictions across the globe as to how to regulate crypto-assets service providers (IOSCO 2023). - The Recommendations in IOSCO’s Consultation Report set expectations and guardrails to regulate and supervise crypto-asset markets, which are inherently cross-border in nature. *Source: imf-fsb-synthesis-paper-policies-for-crypto-assets - Annex 1 and Annex 2 (selected content).* ### Annex 2: FSB high-level recommendations - High-level recommendations for the regulation, supervision, and oversight of crypto-asset activities and markets - Recommendation 1: Regulatory powers and tools - Authorities should have and utilise the appropriate powers and tools, and adequate resources to regulate, supervise, and oversee crypto-asset activities and markets, and enforce relevant laws and regulations effectively, as appropriate. - Recommendation 2: General regulatory framework - Authorities should apply comprehensive and effective regulation, supervision, and oversight to crypto-asset activities and markets – including crypto-asset issuers and service providers – on a functional basis and proportionate to the financial stability risk they pose, or potentially pose, and consistent with authorities’ respective mandates in line with the principle “same activity, same risk, same regulation”. - Recommendation 3: Cross-border cooperation, coordination, and information sharing - Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication, information sharing and consultation in order to support each other as appropriate in fulfilling their respective mandates and to encourage consistency of regulatory and supervisory outcomes. - Recommendation 4: Governance - Authorities, as appropriate, should require that crypto-asset issuers and service providers have in place and disclose a comprehensive governance framework with clear and direct lines of responsibility and accountability for all functions and activities they are conducting. - The governance framework should be proportionate to their risk, size, complexity and systemic importance, and to the financial stability risk that may be posed by activity or market in which the crypto-asset issuers and service providers are participating. - It should provide for clear and direct lines of responsibility and accountability for the functions and activities they are conducting. - Recommendation 5: Risk management - Authorities, as appropriate, should require crypto-asset service providers to have an effective risk management framework in place that comprehensively addresses all material risks associated with their activities. - The framework should be proportionate to the risk, size, complexity, and systemic importance, and to the financial stability risk that may be posed by the activity or market in which they are participating. - Authorities should, to the extent necessary to achieve regulatory outcomes comparable to those in traditional finance, require crypto-asset issuers to address the financial stability risk that may be posed by the activity or market in which they are participating. - Recommendation 6: Data collection, recording and reporting - Authorities, as appropriate, should require that crypto-asset issuers and service providers have in place robust frameworks, including systems and processes, for collecting, storing, safeguarding, and the timely and accurate reporting of data, including relevant policies, procedures and infrastructures needed, in each case proportionate to their risk, size, complexity and systemic importance. - Authorities should have access to the data as necessary and appropriate to fulfil their regulatory, supervisory and oversight mandates. - Recommendation 7: Disclosures - Authorities should require that crypto-asset issuers and service providers disclose to users and relevant stakeholders comprehensive, clear and transparent information regarding their governance framework, operations, risk profiles and financial conditions, as well as the products they provide and activities they conduct. - Recommendation 8: Addressing financial stability risks arising from interconnections and interdependencies - Authorities should identify and monitor the relevant interconnections, both within the crypto-asset ecosystem, as well as between the crypto-asset ecosystem and the wider financial system. - Authorities should address financial stability risks that arise from these interconnections and interdependencies. - Recommendation 9: Comprehensive regulation of crypto-asset service providers with multiple functions - Authorities should ensure that crypto-asset service providers and their affiliates that combine multiple functions and activities, where permissible, are subject to appropriate regulation, supervision and oversight that comprehensively address the risks associated with individual functions and the risks arising from the combination of functions, including but not limited to requirements regarding conflicts of interest and separation of certain functions, activities, or incorporation, as appropriate. - High-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements - Recommendation 1: Authorities’ readiness to regulate and supervise global stablecoin arrangements - Authorities should have and utilise the appropriate powers and tools, and adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement and its associated functions and activities, and enforce relevant laws and regulations effectively. - Recommendation 2: Comprehensive oversight of GSC activities and functions - Authorities should apply comprehensive and effective regulatory, supervisory and oversight requirements consistent with international standards to GSC arrangements on a functional basis and proportionate to their risks insofar as such requirements are consistent with their respective mandates. - Recommendation 3: cross-border cooperation, coordination and information sharing - Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication, information sharing and consultation in order to support each other in fulfilling their respective mandates and to ensure comprehensive regulation, supervision, and oversight of a GSC arrangement 6 across borders and sectors, and to encourage consistency of regulatory and supervisory outcomes. - Recommendation 4: Governance structures and decentralised operations - Authorities should require that GSC arrangements have in place and disclose a comprehensive governance framework with clear and direct lines of responsibility and accountability for all functions and activities within the GSC arrangement. - Recommendation 5: Risk management - Authorities should require that GSC arrangements have effective risk management frameworks in place that comprehensively address all material risks associated with their functions and activities, especially with regard to operational resilience, cyber security safeguards and AML/CFT measures, as well as “fit and proper” requirements, if applicable, and consistent with jurisdictions’ laws and regulations. - Recommendation 6: Data storage and access to data - Authorities should require that GSC arrangements have in place robust frameworks, including systems and processes for the collecting, storing, safeguarding and timely and accurate reporting of data. - Authorities should have access to the data as necessary and appropriate to fulfil their regulatory, supervisory and oversight mandates. - Recommendation 7: Recovery and resolution of the GSC - Authorities should require that GSC arrangements have appropriate recovery and resolution plans. - Recommendation 8: Disclosures - Authorities should require that GSC issuers and, where applicable, other participants in the GSC arrangements provide all users and relevant stakeholders with comprehensive and transparent information to understand the functioning of the GSC arrangement, including with respect to the governance framework, any conflicts of interest and their management, redemption rights, stabilisation mechanism, operations, risk management framework and financial condition. - Recommendation 9: Redemption rights, stabilisation, and prudential requirements - Authorities should require that GSC arrangements provide a robust legal claim to all users against the issuer and/or underlying reserve assets and guarantee timely redemption. - For GSCs referenced to a single fiat currency, redemption should be at par 10 into fiat. - To maintain a stable value at all times and mitigate the risks of runs, authorities should require GSC arrangements to have an effective stabilisation mechanism, clear redemption rights and meet prudential requirements. - Recommendation 10: Conformance with regulatory, supervisory and oversight requirements before commencing operations - Authorities should require that GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing any operations in that jurisdiction and adapt to new regulatory requirements as necessary and as appropriate. *Source: imf-fsb-synthesis-paper-policies-for-crypto-assets - Annex 1 and Annex 2 (selected content).* ### Annex 3: Detailed shared FSB-SSB workplan ### Annex 3: Detailed shared FSB-SSB workplan ### Risks and regulation of crypto-assets and markets - Finalisation of FSB high-level recommendations for regulation, supervision and oversight of crypto-assets and markets (FSB) - Objective/Scope: Recommendations to address financial stability risks of crypto-asset markets and activities, including issuers and service providers. They cover regulatory power, cross-border cooperation, governance, risk management, data, disclosure, systemic risk and multi-function intermediaries. - Status/Timeline: Publication of finalised high-level recommendations in July 2023 (G20), review of the status of implementation at a jurisdictional level by end-2025. - Crypto-Assets and Digital Assets Recommendations (IOSCO) - Objective/Scope: Apply IOSCO Principles and Standards to economically equivalent crypto-assets and activities to address market integrity and investor protection risks, covering conflicts of interest, client asset protection, market manipulation, operational risk, retail access suitability, and cross-border issues. - Status/Timeline: IOSCO Fintech Task Force (FTF) issued a consultation on proposed CDA policy recommendations in May 2023. The CDA policy recommendations will be finalised by end of 2023. - Financial stability risks of decentralised finance (FSB) - Objective/Scope: Assess financial stability implications of DeFi (and associated trading, lending, and borrowing practices, services and platforms, protocols, and market participants) and draw policy implications that SRC could consider. - Status/Timeline: Report published and submitted to G20FMCBG in February. - Policy implications of DeFi (FSB) - Objective/Scope: Consider regulatory implications of DeFi and assess whether additional policy work is warranted. - Status/Timeline: Preliminary work underway and is expected to be completed by end-2024. - DeFi Recommendations (IOSCO) - Objective/Scope: Updates on the state of the DeFi market and provide recommendations on applying existing IOSCO principles to DeFi by mapping them against key aspects of DeFi activities and protocols. - Status/Timeline: IOSCO FTF will consult on proposed DeFi policy recommendations during Q3 2023. The DeFi policy recommendations will be finalised by end-2023. - Exploratory work on DeFi in the insurance sector (IAIS) - Objective/Scope: Explore recent developments in Decentralised Insurance, analyse supervisory challenges and identify areas of future work. - Status/Timeline: Following initial analysis during 2021-2022, the IAIS Fintech Forum will continue analysis; Non-public note to be finalised in 2023. FSI-IAIS-EIOPA joint webinar in October 2023. - Multifunction crypto-asset intermediaries (FSB) - Objective/Scope: Assess financial stability implications of multifunction crypto-asset intermediaries, building on lessons from recent failures, and draw policy implications. - Status/Timeline: Work underway. - Policy implications of multi-function crypto-asset intermediaries (FSB) - Objective/Scope: Consider regulatory implications and assess whether additional policy work is warranted for compounded risks, conflict of interests, and opaque related-party transactions. - Status/Timeline: Work to begin depending on analytic work and will be completed by end-2024. - Regular monitoring and assessment of vulnerabilities in crypto-asset markets (FSB) - Objective/Scope: Keep track of crypto-asset market developments (including stablecoins and DeFi) and assess financial stability implications; conduct on-the-spot analysis of major crypto-asset market events. - Status/Timeline: Work underway. ### Risks and regulation of Stablecoins - Finalisation of FSB high-level recommendations for global stablecoins (GSCs) (FSB) - Objective/Scope: Promote consistent and effective regulation, supervision and oversight of GSCs across jurisdictions to address potential financial stability risks. - Status/Timeline: Publication of finalised high-level recommendations in July 2023 (G20), review of the status of implementation at a jurisdictional level by end-2025. - Authorities’ responsibilities for stablecoin arrangements under the Principles for financial market infrastructure (PFMI) (CPMI-IOSCO) - Objective/Scope: Analyse challenges for regulatory, supervisory and oversight authorities in implementing their PFMI Responsibilities for stablecoin arrangements, especially Responsibility E (cooperation with other authorities), and identify potential approaches. - Status/Timeline: Key findings to be shared with the wider international regulatory community as appropriate. - Risks associated with multi-currency and asset-linked stablecoins (CPMI-IOSCO) - Objective/Scope: Identify issues for multicurrency or asset-linked stablecoins that may require additional clarifications or additions to the July 2022 CPMI-IOSCO guidance on application of the PFMI to SAs. - Status/Timeline: Publication on issues potentially requiring further clarifications related to multicurrency stablecoins used as a settlement asset is envisaged for H2 2023. Work on the asset-linked stablecoins is in the early stage. - Cross-border regulatory coordination for GSCs in emerging market and developing economies (EMDEs) (FSB) - Objective/Scope: Explore how to address unique cross-border financial stability risks posed by GSCs, including risks specific to EMDEs, and consider ways to enhance supervisory and regulatory coordination. - Status/Timeline: Work to begin in late Q3 2023 and continue into 2024. - Banks’ stablecoin exposures and related activities (BCBS) - Objective/Scope: See related BCBS activities in the section on financial sector exposures to crypto-assets, including criteria to identify stablecoins eligible for “Group 1b” prudential treatment, composition of stablecoin reserve assets and banks as stablecoin issuers. - Status/Timeline: Ongoing as part of the BCBS 2023-24 work programme. - Regular monitoring of developments in stablecoins (CPMI secretariat) - Objective/Scope: Monitor key trends in the stablecoin market, e.g., market capitalisation, deviations from peg and composition of backing assets. - Status/Timeline: Data being collected on an ongoing basis to support the work of the CPMI, BIS and the FSB. - Potential of SAs for cross-border payments as part of Building block 18 in the cross-border payments programme (CPMI) - Objective/Scope: Help central banks and regulatory authorities understand how SAs, if properly designed and regulated, could contribute to making cross-border payments faster, cheaper, more transparent and more inclusive; analyse potential benefits, challenges, and implications for central banks’ key functions. - Status/Timeline: The report is envisaged for publication in September 2023. ### Financial sector exposures to crypto-assets - Banks’ exposures to crypto-assets (BCBS) - Objective/Scope: Monitor implementation of BCBS’s prudential treatment of banks' crypto-asset exposures; review by end-2023 the treatment of permissionless blockchains with additional safeguards and criteria to identify stablecoins eligible for the "Group 1b" prudential treatment, including composition of reserve assets and effectiveness of statistical tests. - Status/Timeline: Ongoing as part of the BCBS 2023-24 work programme. - Assessment of bank-related developments and activities in crypto-asset markets (BCBS) - Objective/Scope: Assess bank-related developments and activities in crypto-asset markets, including the role of banks as stablecoin issuers, custodians of crypto-assets and broader channels of interconnections with the crypto-asset ecosystem; develop proposals to address risks not adequately captured. - Status/Timeline: Ongoing as part of the BCBS 2023-24 work programme. - Monitoring of insurer-related developments in crypto-asset markets (IAIS) - Objective/Scope: Monitor the extent to which developments in crypto-asset markets may impact the insurance sector. - Status/Timeline: IAIS Fintech Forum and IAIS Macroprudential Supervision Working Group undertook initial monitoring during 2022 and concluded that usage of and exposure to crypto-assets in the insurance sector is currently very limited. Further monitoring is planned for 2023. Next Fintech Forum roundtable on crypto-assets is planned for H2 2023. - Implications of distributed ledger technology (DLT) and DeFi for financial market infrastructures (FMIs) (CPMI-IOSCO) - Objective/Scope: Identify emerging risks associated with the use of DLT by FMIs and interaction between FMIs and DeFi. - Status/Timeline: A workshop with industry and academics is envisaged for H2 2023. ### Other areas of related work - Tokenisation (FSB) - Objective/Scope: Take stock of recent developments regarding tokenisation of assets to identify potential financial stability implications and explore policy implications warranting further consideration by the SCAV, SRC and other bodies. - Status/Timeline: Work is underway, expected completion in 2024. - Future of Payments - Tokenisation (CPMI) - Objective/Scope: Analytical exploration of characteristics of tokenisation of money and payments, and the benefits, risks and challenges to central banks of a tokenised financial ecosystem. - Status/Timeline: Work is at an early stage. Deliverables to be determined. - Annual CBDC and crypto-asset survey (CPMI) - Objective/Scope: Monitor central banks’ involvement in CBDC work and their perceptions regarding usage of stablecoins and other crypto-assets in their jurisdictions. - Status/Timeline: 6th survey conducted with responses from over 80 central banks. Published in July 2023. ### Glossary (selected definitions preserved verbatim) - Algorithmic stablecoin: A stablecoin that purports to maintain a stable value via protocols that provide for the increase or decrease of the supply of the stablecoin in response to changes in demand. - Blockchain: A form of distributed ledger in which details of transactions are held in the ledger in the form of blocks of information. A block of new information is appended to the chain of pre-existing blocks via a computerised process by which transactions are validated. - Crypto-asset: A digital asset (issued by the private sector) that depends primarily on cryptography and distributed ledger or similar technology. - Crypto-asset ecosystem: The entire ecosystem that encompasses all crypto-asset activities, market and participants. - Crypto-asset issuer: An entity, person, or other structure that creates new crypto-assets. - Crypto-asset market: Any place or system that provides buyers and sellers the means to trade crypto-assets and the associated instruments, including lending, structured investment products, and derivatives. - Crypto-asset services: Services relating to crypto-assets that may include, but are not limited to, distribution, placement, facilitating exchange between crypto-assets or against fiat currencies, custody, provisioning of non-custodial wallets, facilitating crypto-asset trading, borrowing or lending, and acting as a broker-dealer or investment adviser. - Crypto-asset service providers: Individuals and entities that provide crypto-asset services. - Crypto-asset activities: Activities serviced by a crypto-asset issuer or crypto-asset service provider. - Crypto-asset trading platform: Any platform where crypto-assets can be bought and sold, regardless of the platform’s legal status. - Decentralised Finance (DeFi): A set of alternative financial markets, products and systems that operate using crypto-assets and ‘smart contracts’ (software) built using distributed ledger or similar technology. - DeFi protocols: A specialized autonomous system of rules that creates a program designed to perform financial functions. - Digital asset: A digital representation of value or contractual rights which can be used for payment or investment purposes. - Global stablecoin (GSC): A stablecoin with an existing or potential reach and use across multiple jurisdictions and which could become systemically important in and across one or many jurisdictions, including as a means of making payments and/or store of value. - Smart contract: Code deployed in a distributed ledger technology environment that is self-executing and can be used to automate the performance of agreement between entities. The execution of a smart contract is triggered when that smart contract is “called” by a transaction on the blockchain. If triggered, the smart contract will be executed through the blockchain’s network of computers and will produce a change in the blockchain’s “state” (for example, ownership of a crypto-asset will transfer between market participants). - Stablecoin: A crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets. - Stablecoin arrangement: An arrangement that combines a range of functions (and related activities) that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets. - Typical activities: (i) establishing rules governing the stablecoin arrangement; (ii) issuing, creating and destroying stablecoins; (iii) managing reserve assets; (iv) providing custody/trust services for reserve assets; (v) operating the infrastructure; (vi) validating transactions; (vii) storing the private keys providing access to stablecoins (e.g., using a wallet); and (viii) exchanging, trading, reselling, and market making of stablecoins. - Functions: (i) governing the arrangement; (ii) issuance, redemption and stabilisation of the value of coins; (iii) transfer of coins; and (iv) interaction with users for storing and exchanging coins. - Governance body: A body responsible for establishing and monitoring the rules governing the stablecoin arrangement. - Provider of function/activity: An entity that provides a particular function or activity associated with that function in a stablecoin arrangement. - User: A person or entity that uses a stablecoin, e.g., for speculative trading, lending, borrowing, or as a means of payment or store of value. - Validator node: An entity that participates in the consensus mechanism in a distributed ledger or similar network. - Wallet: An application or device for storing the cryptographic keys providing access to crypto-assets. 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