Scrutinise the Bali Fintech Agenda (BFA) and the considerations and steps it proposes for designing regulation of crypto assets.
The idea
The Bali Fintech Agenda was issued by the IMF and the World Bank in October 2018 and sets out 12 elements to guide countries on fintech. It is high level, and the crypto note uses it as a design framework. Key ideas are to monitor developments closely before acting, adapt regulation and supervision proportionately, safeguard financial integrity through anti money laundering and counter terrorist financing rules, modernise legal frameworks so that ownership and insolvency treatment are clear, protect domestic monetary and financial stability, and encourage international cooperation because crypto assets cross borders and invite regulatory arbitrage. Other elements cover competition, financial inclusion, data infrastructure and collective surveillance. A common error is to treat it as binding rules or as a ban. Exam point: link each risk, such as money laundering or monetary substitution, to the element that responds to it.
A practice question
The Bali Fintech Agenda was published in October 2018 by which institutions?
- The Financial Stability Board and the Bank for International Settlements.Why not: These bodies work on crypto and stablecoin policy but did not publish the Bali Fintech Agenda.
- The International Monetary Fund and the World Bank. - correct
- The Basel Committee and IOSCO.Why not: These set prudential and securities-market standards, not the Bali Fintech Agenda.
- The Financial Action Task Force and the OECD.Why not: The FATF sets anti money laundering standards; neither body issued the Bali Fintech Agenda.
The Bali Fintech Agenda was launched by the IMF and the World Bank at their 2018 annual meetings in Bali.
A harder one
A regulator wants exchanges and wallet providers to identify customers and report suspicious transactions. Which Bali Fintech Agenda element does this most directly implement?
- Foster fintech to promote financial inclusion and develop financial markets.Why not: Inclusion is a different aim and does not call for customer identification.
- Enhance collective surveillance of the international monetary and financial system.Why not: Concerns multilateral oversight and does not require obligations on service providers.
- Develop robust financial and data infrastructure.Why not: Concerns payment, identity and data systems that support fintech, not obligations on providers.
- Safeguard financial integrity by combating money laundering and terrorist financing. - correct
Customer due diligence and suspicious transaction reporting are anti money laundering and counter terrorist financing tools, the heart of the integrity element.
The hardest tier
In a highly dollarised country, residents increasingly use unbacked crypto assets instead of the local currency and to move funds around capital controls. Which Bali Fintech Agenda element is most directly engaged?
- Reinforce competition and commitment to open, free and contestable markets.Why not: Competition policy addresses market structure, not substitution for the national currency.
- Ensure the stability of domestic monetary and financial systems. - correct
- Develop robust financial and data infrastructure.Why not: Concerns supporting systems and does not address monetary substitution or capital flows.
- Foster fintech to promote financial inclusion.Why not: Inclusion is a benefit of fintech; the problem here is a threat to monetary and financial stability.
Crypto substitution for local currency and circumvention of capital controls threaten monetary policy and financial stability. That is the stability element.
In the app: 6 practice questions on this outcome, spaced review that brings it back before you forget it.
Start free →More in Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
- Define crypto assets and characterise them, including the classes that financial regulators around the world commonly use to sort them.
- Judge the main parts of the crypto ecosystem, the risks each part can create, and the regulatory measures that could address those risks.
- Pinpoint and outline several worldwide approaches to regulating unbacked crypto assets, including the BCBS proposal on how banks should treat their crypto exposures.