From fragmented monitoring and enforcement to differing classifications of crypto assets, many barriers hinder global coordination on crypto-asset regulation efforts. A new study from the World Economic Forum identifies the importance of a global approach to crypto-asset regulations and provides potential solutions to these barriers.
The report, Pathways to Crypto-Asset Regulation: A Global Approach, emphasizes that while full global coordination for crypto regulation would be ideal, varying ecosystem maturity in different jurisdictions, evolving use cases, capacity of regulators and other factors make it difficult to achieve.
As such, regulators and industry players should explore alternative regulatory pathways to collaborate and regulate the crypto-asset ecosystem through a principle-based, agile approach that takes local context into consideration. Along with the existing efforts on global coordination, these additional regulatory solutions can be leveraged to attain the desired outcome.
“The evolving crypto-asset ecosystem and recent market events have underscored the pressing need for collaboration and the building of robust guardrails,” said Matthew Blake, Head, Centre for Financial and Monetary Systems, World Economic Forum. “While jurisdictions may take a different approaches to regulating crypto-assets, it is important to foster partnerships between international organizations, national authorities, and industry stakeholders, to ensure a baseline level of consumer protection and market integrity.”
Global crypto regulation trends
Over the past few years, various international standard-setting bodies and organizations have made considerable efforts to produce evidence-based research as well as high-level frameworks. As countries have started regulating the ecosystem, some common trends have begun to emerge.
Numerous countries and regions have implemented the following regulations:
Image: World Economic Forum
These trends can already help to provide a baseline that the global crypto-asset ecosystem can build on to move towards coordinated, harmonized regulation on a global scale.
Global coordination is ideal but is difficult to achieve. However, regulatory pathways already exist that international organizations, regional bodies and industry players can implement.
International organizations should promote harmonized understanding of taxonomy and classification of crypto assets and related activities, setting out baseline regulatory standards, as well as encourage passportability and data-sharing that enable interoperability.
These measures can foster convergence in different jurisdictions, provide clarity for business, protect users and discourage illicit activities.
Regional and national authorities
Regional and national authorities play a key role in providing certainty for innovators and empowering consumers. As such, the report suggests they should focus on coordinating among domestic departments to address cross-sector risks, develop guidelines and best practice frameworks to proportionately regulate the ecosystem. They should also leverage technology and analytics services for automated regulatory compliance/reporting, real-time risk alerts and tracking regulatory change.
These bodies can also implement learnings from regulations in other sectors for best practices. Data-sharing regulations in the crypto industry could leverage learnings from, for example, supervisory colleges that oversee information sharing in the broader financial sector.
Industry leaders should continue work on interoperable technical standards and focus on establishing and disseminating best practices. Additionally, they should engage with policy-makers and regulators in an effort to innovate responsibly and align on educational efforts.
Crypto industry players have a vital role to ensure that the ecosystem evolves in a responsible manner and can learn from more mature industries to fulfil this role. For example, the crypto ecosystem can look years of experience in evolving data security standards for credit cards or global principles of good practice in the foreign exchange market (Global FX Code) to ensure consumer interests are protected.
Ultimately, international organizations, regional and national regulators and industry leaders will need to collaborate to ensure consistency and clarity. While acknowledging the challenges in achieving coordination, the new report recommends multiple prioritized pathways that various stakeholders can employ to achieve the desired outcome.
To regulate this dynamic sector effectively requires the utilization of diverse regulatory tools, including legislative frameworks, voluntary codes of conduct and educational initiatives. Furthermore, given the inherent transparency of these new technologies, it becomes conceivable to envision even more effective regulatory tools to address cross-border concerns.
“As a global company, Circle has prioritized regulatory engagement and policy harmonization, which the critical work carried out by the World Economic Forum and the Digital Currency Governance Consortium continues to advance. We welcome this work and encourage nations, companies, investors and people to promote a race to the top when it comes to responsible financial services innovations powered by digital currencies and constantly upgradable financial infrastructure,” said Jeremy Allaire, Co-Founder, Chairman and CEO, Circle
“The crypto-asset movement was created out of the 2008 financial crisis with the belief that the financial system should be better. They have the potential to do just that — revolutionize the global economy. The World Economic Forum’s report on the regulation of crypto-assets is a significant step towards fostering a balanced and informed approach to governing this transformative industry,” said Michael Gronager, Cofounder and CEO, Chainalysis.
“2022 has been a transformative year for virtual assets, and to enable a sustainable future, regulatory clarity and certainty are foundational anchors. Equally, given the increasingly borderless reality of the new economy, it is our collective responsibility to harmonize rules that allow for consistent interpretation, and uniform enforcement – ultimately driving towards a trusted, progressive, and safe global market for virtual assets,” said Deepa Raja Carbon, Managing Director and Vice Chair, Virtual Assets Regulatory Authority, UAE
“The coordinated efforts of all jurisdictions to regulate cryptocurrencies are extremely important. Even if you have the best tools and officers to trace cryptocurrency, all your efforts will be in vain once you bump into some non-regulated exchange that simply doesn’t provide information to law enforcement,” said Oleksiy Feshchenko, Advisor, Global Program against Cybercrime, UN Office on Drugs and Crime (UNODC).
U.S. companies are barreling towards a $1.8 trillion corporate debt
US firms are barreling towards a giant wall of corporate debt that’s about to mature over the next few years, Goldman Sachs strategists said in a note.
There’s $1.8 trillion of corporate debt maturing over the next two years, Goldman Sachs estimated. Firms could be slammed with higher debt servicing costs as interest rates stay elevated. That could eat into corporate revenue and weigh on the US job market.
The investment bank estimated that $790 billion of corporate debt was set to mature in 2024, followed by $1.07 trillion of debt maturing in 2025. That amounts to $1.8 trillion of debt reaching maturity within the next two years, in addition to another $230 billion that will reach maturity by the end of this year, Goldman strategists said.
The wave of debt that will need to be refinanced could spell trouble for companies, as interest rates have been raised aggressively by the Fed over the last year. The Fed funds rate is now targeted between 5.25%-5.5%, the highest range since 2001.
For every extra dollar spent to service their debt, firms will likely pull back on capital expenditures spending by 10 cents and labor spending by 20 cents, the strategists estimated, a reduction that could weigh down the job market by 5,000 payrolls a month in 2024 and 10,000 payrolls a month in 2025.
Experts have warned of trouble for US corporations as credit conditions tighten. Already, the tally of corporate debt defaults in 2023 has surpassed the total number of defaults recorded last year. As much of $1 trillion in corporate debt could be at risk for default if the US faces a full-blown recession, Bank of America warned, though strategists at the bank no longer see a downturn as likely in 2023.
Russian response to sanctions: billions in dollar terms are stuck in Russia
“Tens of billions in dollar terms are stuck in Russia,” the chief executive of one large company domiciled in a country told ‘The Financial Times’. “And there is no way to get them out.”
Western companies that have continued to operate in Russia since Moscow’s invasion of Ukraine have generated billions of dollars in profits, but the Kremlin has blocked them from accessing the cash in an effort to turn the screw on “unfriendly” nations.
Groups from such countries accounted for $18 billion (€16.8 billion) of the $20 billion in Russian profits that overseas companies reported for 2022 alone, and $199 billion of their $217 billion in Russian gross revenue.
Many foreign businesses have been trying to sell their Russian subsidiaries but any deal requires Moscow’s approval and is subject to steep price discounts. In recent days British American Tobacco and Swedish truck maker Volvo have announced agreements to transfer their assets in the country to local owners.
Local earnings of companies from BP to Citigroup have been locked in Russia since the imposition last year of a dividend payout ban on businesses from “unfriendly” countries including the US, UK and all EU members. While such transactions can be approved under exceptional circumstances, few withdrawal permits have been issued.
US groups Philip Morris and PepsiCo earned $775 million and $718 million, respectively. Swedish truck maker Scania’s $621 million Russian profit in 2022 made it the top earner among companies that have since withdrawn from the country. Philip Morris declined to comment. PepsiCo and Scania did not respond to requests for comment.
Among companies of “unfriendly” origin that remain active in Russia, Austrian bank Raiffeisen reported the biggest 2022 earnings in the country at $2 billion, according to the KSE data.
US-based businesses generated the largest total profit of $4.9 billion, the KSE numbers show, followed by German, Austrian and Swiss companies with $2.4 billion, $1.9 billion and $1 billion, respectively.
‘The Financial Times’ reported last month that European companies had reported writedowns and losses worth at least €100 billion from their operations in Russia since last year’s full-scale invasion.
German energy group Wintershall, which this year recorded a €7 billion non-cash impairment after the Kremlin expropriated its Russian business, has “about €2 billion in working interest cash… locked in due to dividend restrictions”, investors were told on a conference.
“The vast majority of the cash that was generated within our Russian joint ventures since 2022 has dissipated,” Wintershall said last month, adding that no dividends had been paid from Russia for 2022.
Russian officials are yet to outline “a clear strategy for dealing with frozen assets”, said Aleksandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Centre. “However, considering the strong desire of foreign entities to regain their dividends, they are likely to explore using them as leverage – for example to urge western authorities to unfreeze Russian assets.”
Transforming Africa’s Transport and Energy Sectors in landmark Zanzibar Declaration
A special meeting of African ministers in charge of transport and energy held from 12-15 September on the theme, “Accelerating Infrastructure to Deliver on the AU Agenda 2063 Aspirations” has concluded with an action-oriented Zanzibar Declaration aimed at spurring the Continent’s transport and energy sectors.
Convened under the auspices of the African Union’s Fourth Ordinary Specialized Technical Committee on Transport, Transcontinental and Interregional Infrastructure and Energy, the meeting was organized by the African Union Commission (AUC) in collaboration with the African Union Development Agency (AUDA-NEPAD), the African Development Bank (AfDB) and the United Nations Economic Commission for Africa (ECA).
Speaking at the Ministerial segment of the meeting, Robert Lisinge, Acting Director of the Private Sector Development and Finance Division at the ECA called on member states to address the barriers limiting private sector investments in infrastructure and energy, urging them to facilitate investments by creating conducive policy and regulatory environments. “The requirements of continental infrastructure development and the aspirations of Agenda 2063 and Agenda 2030 far exceed current levels of public sector investment,” he said.
He stressed that over the next ten years, there is a need for concerted action to address energy transition and security issues, in order to open up opportunities for the transformation of the continent. He cited ECA’s analytical work on the AfCFTA, which demonstrates there are investment opportunities for infrastructure development in the area of transport and energy and added that digitization and artificial intelligence offer great opportunities for the efficient operation of infrastructure.
According to the Zanzibar Declaration, the Ministers adopted the AUC and ECA continental regulatory framework for crowding-in private sector investment in Africa’s electricity markets. This framework will be used as an instrument for fast-tracking private sector investment participation in Africa’s electricity markets. The Declaration also called on ECA and partners to develop a continental energy security policy framework as called for by the 41st Ordinary Session of the Executive Council and an Energy Security Index and Dashboard to track advancements in achieving Africa’s energy security.
The meeting acknowledged the efforts by ECA to support Member States in coordinating Public-Private Partnerships (PPP) with development partners and the establishment of the African School of Regulation (ASR) as a pan-African centre of excellence to enhance the capacity of Member States on energy regulation.
The Declaration requested the ECA and partner institutions to further act in the following areas:
The AUC, in collaboration with AUDA-NEPAD, ECA, AfDB, RECs, Africa Transport Policy Programme (SSATP), and the African Continental Free Trade Area (AfCFTA) Secretariat to implement the roadmap on the comprehensive and integrated regulatory framework on road transport in Africa.
ECA, in collaboration with AUC, to identify innovative practices and initiatives that emerged in the aviation industry in Africa during the COVID-19 pandemic and propose ways of sustaining such practices, including the development of smart airports with digital solutions for improved aviation security facilitation and environmental protection.
ECA, in collaboration with AUC, to establish mechanisms for systematic implementation, monitoring and evaluation of continental strategies for a sustainable recovery of the aviation industry.
The AUC, AUDA-NEPAD, AfDB and UNECA to engage with development partners and Development Finance Institutions (DFIs) to mobilize resources for projects preparation and implementation of PIDA-PAP 2 projects.
ECA and AUC, in collaboration with partners, to coordinate PPP initiatives to avoid duplication of efforts and strengthen complementarity.
The AUC and ECA to work with continental, regional and specialized institutions to support the design and implementation of programmes, courses, and capacity development initiatives of the African School of Regulation (ASR) to support the implementation of the African Single Electricity Market and Continental Power System Master Plan.
The AUC to work with AUDA-NEPAD, AfDB, ECA and RECs, respective power pools, regional regulatory bodies, and relevant stakeholders to design continental mechanisms for regulating and coordinating electricity trade across power pools.
AUDA-NEPAD, AUC, AFREC, ECA, AfDB, Power pools and development partners to comprehensively assess local manufacturing of renewable energy technologies and beneficiation of critical minerals for battery manufacturing.
ECA and AFREC to accelerate the implementation of the Energy4Sahel Project to improve the deployment of off-grid technologies and clean cooking in the affected Member States.
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