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IMF wants lead on cryptocurrency crackdown

The International Monetary Fund has plunged into the debate on regulating cryptocurrencies.

“The IMF’s mandate is to safeguard the stability of the international monetary and financial system, and crypto assets are changing the system profoundly,” the IMF said in a blog post on Friday.

Governments are struggling to monitor risks from this evolving sector, in which many activities are unregulated.

“In fact, we think these financial stability risks could soon become systemic in some countries,” the IMF’s Tobias Adrian, Dong He, and Aditya Narain said.

“We now need comprehensive international standards that more fully address risks to the financial system from crypto assets, their associated ecosystem, and their related transactions.”

They said the broader gains from the leap in technology should not be confused with a surging market.

“While the nearly $2.5 trillion ($A3.5 trillion) market capitalisation indicates significant economic value of the underlying technological innovations such as the blockchain, it might also reflect froth in an environment of stretched valuations.”

Early reactions to the Omicron variant included a significant crypto sell-off.

There are also operational and financial integrity risks from crypto asset exchanges and wallets, a lack of investor protection, and inadequate reserves and inaccurate disclosure.

In emerging markets and developing economies, the advent of crypto can accelerate “cryptoization”, when these assets replace domestic currency, and circumvent exchange restrictions and capital account management measures, the IMF said.

Australian regulators and their peers are also concerned about countering money laundering and the financing of terrorism through unregulated cryptocurrencies that can dodge international borders.

The IMF said crypto-asset service providers should be licensed or authorised.

Services and products for investments should have requirements similar to those of securities brokers and dealers, overseen by the securities regulator.

Authorities should also provide clear requirements on regulated financial institutions on exposure to and engagement with crypto, the blog said.

For example, the appropriate banking, securities, insurance, and superannuation regulators should stipulate the capital and liquidity requirements and limits on exposure, and require investor suitability and risk assessments.

There must also be room for useful crypto asset products and applications, the IMF said.

The fund plans to work closely with the Financial Stability Board and other members of the international regulatory community, including the Reserve Bank of Australia, to develop an effective regulatory approach.

Treasurer Josh Frydenberg this week announced an overhaul of payments and cryptocurrency regulation that would require new laws, including a financial licensing scheme.

But the IMF said there is an urgent need for cross-border collaboration and cooperation.

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