RBI pitches for common approach to address risks from crypto assets

Mumbai: To address potential financial stability risks and protect investors, it is important to arrive at a common approach to crypto assets, the Financial Stability Report released by RBI said on Thursday.

In this context, various options are being considered internationally, it said.

One option is to apply the same-risk-same-regulatory-outcome principle and subject them to the same regulation applicable to traditional financial intermediaries and exchanges, the report said.

Another option is to prohibit crypto assets, since their real life use cases are next to negligible and the challenge is that different countries have different legal systems and individual rights vis- -vis state powers, it noted.

A third option is to let it implode and make it systemically irrelevant as the underlying instability and riskiness will ultimately prevent the sector from growing, it said.

The third option, however, is fraught with risks as the sector may become more interconnected with mainstream finance and divert financing away from traditional finance with broader effect on the real economy, the report said.

Regulating new technology and business models after they have grown to a systemic level is challenging, it pointed out.

To promote responsible innovation and to mitigate financial stability risks in crypto ecosystem, the report said it is vital for policymakers to design an appropriate policy approach.

In this context, under India's G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition, of unbacked crypto assets, stablecoins and decentralised finance (DeFi), it said.