Read time: 3 minutes

Regulatory gaps can heighten risk in cryptocurrency trade says IMF

While cryptocurrencies continue to grow in appeal as viable channels of investment, gaps in legal and regulatory frameworks is a challenge and cause for concern.

This is according to recent research by the International Monetary Fund (IMF), Capital Flow Management Measures in the Digital Age: Challenges of Crypto Assets, which highlights that a concerted effort is needed to develop data capabilities and strengthen the availability, quality, and consistency of data on cryptocurrencies.

According to the IMF, crypto assets have become a significant instrument for payments and speculative investments in some countries, “driven by a host of macro-economic, institutional, and demographic factors.”

However there is growing concern that crypto assets can be traded fraudulently and held without identification of the residency of the asset holder.

“Many crypto service providers operate across borders, making supervision and enforcement by national authorities more difficult,” reads part of the report.

The report indicates that the challenges posed by the attributes of crypto assets are compounded by gaps in the legal and regulatory frameworks, as the legal status of crypto assets is often not clear and CFM laws and regulations may not cover crypto assets.

The researchers call for establishing international collaborative arrangements for supervision of crypto assets to address data gaps and leveraging technology to create anomaly detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.

Commenting on the report Dr Tshiamo Motshegwa from University of Botswana’s Faculty of Computer Science said: “On the positive impact of technology, there exist technology platforms like blockchain that can enforce transparency including through monitoring supply chains, recording of transactions and smart contracts etc. this through an underlying globally distributed ledger supporting non-repudiation.”

Dr Motshegwa added that technology can also exacerbate the challenge. “These work over exchanges with no central authority and across borders and jurisdictions. There are glaring legal and regulatory framework gaps in place around the world to deal with these, and generally policy development in countries is lagging technology advancement in these areas.”

Daily newsletter