## How Policymakers Should Regulate Cryptoassets and Fintech - Straight Talk - IMF F&D Magazine ## Source details **Canonical URL:** [How Policymakers Should Regulate Cryptoassets and Fintech - Straight Talk - IMF F&D Magazine](https://www.imf.org/en/publications/fandd/issues/2018/06/how-policymakers-should-regulate-cryptoassets-and-fintech-straight) ## Other formats - [Markdown version](/en/publications/fandd/issues/2018/06/how-policymakers-should-regulate-cryptoassets-and-fintech-straight/index.md) - [Structured JSON version](/en/publications/fandd/issues/2018/06/how-policymakers-should-regulate-cryptoassets-and-fintech-straight/index.json) - [Bundle manifest](/en/publications/fandd/issues/2018/06/how-policymakers-should-regulate-cryptoassets-and-fintech-straight/bundle-manifest.json) ## Bibliographic details - Authors: CHRISTINE LAGARDE - Published: June 1, 2018 --- ### Fintech promise and observed applications - Distributed ledger technology, like blockchain, underpins cryptoassets and "has the potential to improve our lives." - Examples of fintech delivering financial services: - Mobile payment systems in Kenya and China have brought millions of previously "unbanked" people into the financial system. - Peer-to-peer lending in Latvia, Brazil, and elsewhere has opened up a new source of credit for small businesses. - Advances in artificial intelligence can enhance fraud protection, regulatory compliance, expand access to financial services, and deepen financial inclusion. - Potential uses of distributed ledger technology highlighted: - Faster and cheaper transactions (from trading securities to remittances). - Secure storage of records such as diplomas and real estate deeds. - Automatic execution of "smart contracts." - Acknowledged misuse: - The technology "has also been used for illicit purposes." ### Risks and regulatory objectives - Primary risks regulators must address: - Consumer and investor protection against fraud. - Combating tax evasion, money laundering, and the financing of terrorism. - Protecting the integrity and stability of the financial system. - Emerging cybersecurity risks. - Regulatory trade-off: protect consumers and financial stability while avoiding stifling innovation that benefits the public. - Recommended regulatory posture: - Constructively engage with market participants to stay abreast of benefits and identify emerging risks. - Develop a forward-looking regulatory framework requiring creativity, flexibility, and new expertise. - In some cases apply existing regulations; in others, design new approaches as distinctions between entities and activities break down. ### Lessons from the financial crisis (three lessons) - Lesson number one: "trust is the foundation of the financial system, but it is a fragile foundation that can easily be shaken." - Policy implication: ensure new technologies do not undermine trust. - Lesson number two: "risk accumulates in unexpected places." - Policy questions raised: Will a more decentralized financial system be more stable, or less? Will risk be more dispersed? Will diminished role of traditional intermediaries mean emerging risks are more likely to go undetected? - Lesson number three: "in a globalized world, financial shocks quickly reverberate across national boundaries." - Policy implication: responding to crises requires concerted global action; strengthen resilience and international cooperation. ### Global coordination and current international work - Risk of uncoordinated national responses: activity could migrate toward more lightly regulated jurisdictions in a "race to the bottom." - International bodies and actions noted: - The Financial Action Task Force has provided guidance on addressing money-laundering and terrorist-financing risks associated with crypto assets. - The Financial Stability Board (FSB) is studying ways to monitor the growth of crypto assets to identify emerging threats to stability. - G20 engagement: - In March, a meeting of G20 central bankers and finance ministers agreed with the FSB’s assessment that crypto assets do not currently pose a threat to stability. - The G20 also agreed that crypto assets could pose a threat at some point in the future and asked the FSB and other standard-setting bodies to continue their work and report on progress. ### IMF’s role and operational approaches - The IMF's comparative advantages: - Serve as a forum for exchange of ideas and a catalyst for forging consensus. - Monitor the economies and financial systems of its 189 members, help build institutional capacity, and offer advice on policies and regulatory structures. - Leverage a global perspective to understand and advise on fintech and cryptoasset risks and opportunities. - Operational recommendations: - Understand innovative technologies, learn from them, and consider adopting some to improve regulation, supervision, and surveillance. - Do not delay action until all answers are clear; begin considering the regulatory framework of the future now. - Use regulatory "sandboxes" (examples cited: Hong Kong SAR, Abu Dhabi, and elsewhere) to test new financial technologies in closely supervised environments. - Maintain an open mind about crypto assets and financial technology because of both risks and potential to improve lives. ### Key statements and rhetorical framing - Historical analogy: 19th century anecdote of Alexander Graham Bell illustrates the disruptive and unpredictable nature of technological innovation. - Central admonition: "We must guard against emerging risks without stifling innovation." - Closing counsel: "When in doubt, just think of Alexander Graham Bell and his telephone." *Christine Lagarde, "A Regulatory Approach to Fintech," June 2018 — Straight Talk, F&D Magazine (author is a former IMF managing director).* --- ## Content in this bundle - **التكنولوجيا المالية من منظور تنظيمي** - [التكنولوجيا المالية من منظور تنظيمي (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ar/straight.pdf.md){rel="alternate" type="text/markdown"} - [التكنولوجيا المالية من منظور تنظيمي (PDF)](/-/media/files/publications/fandd/article/2018/june/ar/straight.pdf){rel="external" type="application/pdf"} - **Straight** - [Straight (Markdown version)](/-/media/files/publications/fandd/article/2018/june/es/straight.pdf.md){rel="alternate" type="text/markdown"} - [Straight (PDF)](/-/media/files/publications/fandd/article/2018/june/es/straight.pdf){rel="external" type="application/pdf"} - **Откровенный разговор. Регулирование финансовых технологий – Финансы и развитие – июнь 2018 года** - [Откровенный разговор. Регулирование финансовых технологий – Финансы и развитие – июнь 2018 года (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ru/straight.pdf.md){rel="alternate" type="text/markdown"} - [Откровенный разговор. Регулирование финансовых технологий – Финансы и развитие – июнь 2018 года (PDF)](/-/media/files/publications/fandd/article/2018/june/ru/straight.pdf){rel="external" type="application/pdf"} - **A Regulatory Approach to Fintech** - [A Regulatory Approach to Fintech (Markdown version)](/-/media/files/publications/fandd/article/2018/june/straight.pdf.md){rel="alternate" type="text/markdown"} - [A Regulatory Approach to Fintech (PDF)](/-/media/files/publications/fandd/article/2018/june/straight.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2018/06/how-policymakers-should-regulate-cryptoassets-and-fintech-straight_