After a rough year for cryptocurrencies, the International Monetary Fund (IMF) is calling for comprehensive and consistent regulation of the sector. According to its recently issued Global Financial Stability Report, regulation should cover crypto storage, transfer, exchange, and custody of reserves, with extra prudential requirements for those carrying out multiple functions and for the issuers of stablecoins. This comes in the wake of a series of collapses of major cryptocurrency exchanges and crypto-linked banks, such as Silvergate, Signature, Silicon Valley Banks and FTX.

The European Systemic Risk Board (ESRB)also recently issued a warning that measures should be taken to monitor crypto leverage, decentralized finance and crypto staking and lending. The Financial Stability Board (FSB), a grouping of international regulators and chaired by European Central Bank’s chair Christine Lagarde, is due to issue its own crypto rules in July.

The IMF Board, although it has previously expressed concerns over the potential of crypto to replace legal tender, has stopped short of calling for an outright ban on digital assets. Financial players are hoping for curbs on crypto conglomerates, as their mixing of different financial functions could lead to conflicts of interest between innovation and regulation.

Overall, it is clear that more effective regulations are required if the sector is to be stabilized and protect those using it from losses. Additional regulations that focus on consumer protection and corporate governance, would allow the sector to continue to develop, while ensuring the safety of investors. The regulations should, therefore, include measures that requires companies to have adequate capital and liquidity, allow for surveillance, ensure money transfer regulations and provide sufficient oversight of service providers and exchanges.



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