When countries experience large capital outflows, significant currency substitution, an unacceptable level of money laundering risk, and/or risks to consumers and markets, targeted restrictions on crypto assets 'might be useful'

"Targeted restrictions" on crypto assets could be used to manage the risks associated with them, according to a joint report by the Basel-based Financial Stability Board (FSB) and the International Monetary Fund (IMF).

The FSB and IMF report is described as "a comprehensive policy and regulatory response to crypto-asset activities".

The report says that in addition to implementing a wide range of policy recommendations and standards, some authorities might consider implementing targeted or time-bound broad restrictions to manage the risks from crypto-assets.

"In some situations, targeted restrictions could be justified to manage specific risks for resource-constrained authorities or to support regulatory frameworks," the report says.

"For instance, where countries experience large capital outflows, significant currency substitution, an unacceptable level of money laundering and terrorist financing (ML/TF) risks, and/or risks to consumers and markets, targeted restrictions might be useful.

"These restrictions might be targeted to certain products (e.g., privacy tokens), activities (e.g., payments in Ukraine, financial promotions in Singapore, Spain, U.K.), or entities (e.g., banks in Nigeria). Targeted restrictions might be warranted in the short run while countries increase internal capacity (including knowledge and awareness) in anticipation of regulation."

The report also canvasses the subject of "blanket bans" that make all crypto-asset activities illegal. And while it raises a number of difficulties with them, it doesn't appear to categorically rule out the potential for them being used.

It says blanket bans "can be costly and technically demanding to enforce".

"They also tend to increase the incentives for circumvention due to the inherent borderless nature of crypto- assets, resulting in potentially heightened financial integrity risks, and can also create inefficiencies. Bans in one jurisdiction could also lead to activity migrating to other jurisdictions, creating spillover risks. A decision to ban is not an 'easy option' and should be informed by an assessment of money laundering and terrorist financing (ML/TF) risks and other considerations, such as large capital outflows and other public policy aims," the report says.

It says even when jurisdictions contemplate a temporary imposition of restrictions, such restrictions should be considered as part of a larger policy response.

"Restrictions should not substitute for robust macroeconomic policies, credible institutional frameworks, and comprehensive regulation and oversight, which are the first line of defence against the macroeconomic and financial risks posed by crypto-assets."

The report "synthesises" the IMF’s and FSB’s policy recommendations and standards. In February 2023, the IMF published a note to the G20 on the Macrofinancial Implications of Crypto Assets, building on recommendations outlined in the Elements of Effective Policies for Crypto Assets. In July 2023, the FSB published a Global Regulatory Framework for Crypto Asset Activities, which consisted of two distinct recommendations for the regulation, supervision and oversight of crypto-asset markets and activities and “global stablecoin arrangements”.

"It [the report] illustrates macroeconomic and financial stability implications of crypto-asset activities, how they may interact, and how the IMF and FSB’s policy recommendations fit together. The report also encourages implementation of the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards to address risks to financial integrity and mitigate criminal and terrorist misuse of the crypto assets sector," a statement from the IMF and FSB said.

In New Zealand our Reserve Bank has a long-running Future of Money programme that's been looking at a wide range of issues including crypto assets.

It said earlier this year that it is not proposing regulation of crypto assets here yet, but is increasing its monitoring of them and suggested there could be "real advantages to harmonising crypto asset regulation" globally. The RBNZ said that as various overseas regimes are implemented, best practice for regulating cryptoassets may become clearer and this would inform the central bank of "our optimal regulatory design and the assessment of any need for alignment".

Parliament's Finance and Expenditure Committee last month issued a report following its 2021 inquiry into cryptocurrencies. It recommends a cautious and careful regulatory approach featuring "coherent and consistent guidance on the treatment of digital assets under current law."

The FSB and IMF report said that crypto assets pose risks to macroeconomic and financial stability, as well as risks involving financial integrity, consumer and investor protection, and market integrity.

"In some instances, these risks are exacerbated by noncompliance with existing laws. Like other financial activities, these risks can interact with and reinforce each other."

The report said crypto assets "are purported to bring a wide range of benefits", including cheaper and faster cross-border payments, increased financial inclusion and greater portfolio diversification. Greater operational resilience, and increased transparency and traceability of transactions, are also often presented as potential benefits.

"However, a consideration of these purported benefits suggests that many have not yet materialised. Authorities need to comprehensively assess the costs and benefits associated with crypto assets to inform policy decisions."

The statement from the IMF and FSB said its report finds that a comprehensive policy and regulatory response for crypto-assets is necessary to address the risks of crypto-assets to macroeconomic and financial stability. 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.

"Comprehensive regulatory and supervisory oversight of crypto assets can help to address financial stability and financial integrity risks while supporting macroeconomic policies. Comprehensive regulatory and supervisory oversight of crypto assets should be a baseline to address macroeconomic and financial stability risks.

"The report sets out a roadmap, developed together with relevant international organisations and standard-setting bodies, to ensure the effective implementation of the FSB’s and IMF’s recommendations and standards. The roadmap includes currently planned and ongoing work to build institutional capacity beyond G20 jurisdictions; enhance global coordination, cooperation, and information sharing; and address data gaps necessary to understand the rapidly changing crypto-asset ecosystem."