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Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier
Capital flow management measures (CFMs) can be part of the broader policy toolkit to help countries reap the benefits of capital flows while managing the associated risks. Their implementation typically requires that financial intermediaries verify the nature of transactions and the identities of transacting parties but is facing the rising challenge of crypto assets. Indeed, crypto assets have become a significant instrument for payments and speculative investments in some countries. They can be traded pseudonymously 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. The challenges posed by the attributes of crypto assets are compounded by gaps in the legal and regulatory frameworks. This paper aims to discuss how crypto assets could impact the effectiveness of CFMs from a structural and longer-term perspective. To preserve the effectiveness of CFMs against crypto-related challenges, policymakers need to consider a multifaceted strategy whose essential elements include clarifying the legal status of crypto assets and ensuring that CFM laws and regulations cover them; devising a comprehensive, consistent, and coordinated regulatory approach to crypto assets and applying it effectively to CFMs; establishing international collaborative arrangements for supervision of crypto assets; addressing data gaps and leveraging technology (regtech and suptech) to create anomaly-detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.
Mr. Dong He, Annamaria Kokenyne, Xavier Lavayssière, Ms. Inutu Lukonga, Nadine Schwarz, Nobuyasu Sugimoto, and Jeanne Verrier

can be either deposited to the user’s foreign bank account or invested in other assets. The crypto exchanges may need to have a conventional bank account to receive or pay out local currency proceeds, but the central bank and the foreign exchange regulator do not necessarily have the power or sufficient information to block such account services. It is also possible for the crypto-asset exchanges to hold local currency proceeds through mobile money accounts or stablecoins instead of a conventional bank account, particularly for smaller transactions. Figure 5

International Monetary Fund. Asia and Pacific Dept

by using existing AML/CFT laws and regulations governing money and value transfer services, banks, or other payment institutions, based on clarifications that these regulations apply to virtual currency/crypto-asset exchangers; (iii) Some countries do not specifically regulate virtual currencies/crypto-assets or exchanges dealing in them, but have broad-based requirements to report suspicious transactions, including those transactions related to virtual currencies/crypto-assets, and some go beyond regulated entities (i.e., applying suspicious activity reporting

International Monetary Fund. Asia and Pacific Dept

information provided by 18 crypto-asset exchanges operating in Japan. Prices at end-March of each fiscal year is used to calculate the transaction amount. 2/ Derivatives include contract for difference, margin, and futures. 29. The JFSA could further facilitate Fintech adoption and should continue to strengthen crypto-asset oversight . Japan remains a heavily cash-based society with relatively low Fintech penetration—particularly in regional economies, despite the government’s efforts to increase cashless payments. 19 The adoption of Fintech by regional banks has

International Monetary Fund. Monetary and Capital Markets Department
This paper reviews assessment of financial market infrastructures (FMIs) and authorities’ responsibilities in Canada. The report shows that the FMIs have operated normally under a well-established legal and oversight framework that is distinct for Canada. The Bank of Canada (BOC) has issued a Guideline that defines the criteria for identifying FMIs. Recognition of a clearing agency is also required under provincial securities legislation where terms and conditions and the clearing rule would apply. The current oversight approach can benefit from stronger enforcement powers available to the BOC. Provincial securities regulators are encouraged to train FMI oversight staff in advanced quantitative skills to support risk assessment. Further enhancement in managing liquidity and operational risks will help ensure the robust functioning of FMIs. Improvements in cyber resiliency continue in line with international guidance, including industry-wide exercises carried out by FMI operators and participants. However, compliance to endpoint security needs to be tightened by self-attestations and audits of FMI participants. The categorization and reporting of operational incident severity levels could be further coordinated.
International Monetary Fund. Monetary and Capital Markets Department

. 51 Quadriga CX, which is a Canadian crypto-asset exchange, was granted temporary bankrupt protection by the Canadian court in February 2019, following the unexpected death of its founder. An estimated CAD 180 million worth of crypto-assets was held with the crypto-asset exchange. 52 See Joint CSA/Investment Industry Regulatory Organization of Canada Consultation Paper 21–402 Proposed Framework for Crypto-Asset Trading Platforms . 53 This notice was issued on August 24, 2017. 54 This notice was issued on June 11, 2018. 55 Joint CSA

International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper discusses correspondent banking relationships (CBRs) pressures on the Republic of the Marshall Island (RMI). RMI’s two banks currently have access to the US financial system. The Bank of the Marshall Islands is a domestic financial institution providing banking services to a substantial portion of the population and operates five branches throughout RMI, including on the Kwajalein Atoll. RMI, through the Trust Company of the Marshall Islands, provides offshore corporate and maritime registry services. Weak implementation of the anti-money laundering and combating the financing of terrorism (AML/CFT) framework by the authorities contributes to CBR pressures in RMI. The termination of BOMI’s CBR with First Hawaiian Bank would be expected to have significant negative economic repercussions without alternative arrangements. The RMI authorities are strengthening the effectiveness of the AML/CFT framework. Additional steps should be taken to further lower the risk of losing the last US dollar CBR. Once the national risk assessment is completed, an action plan should be developed to address the identified risks.
Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer

payments can exceed the number of transactions. First, multiple payments can be batched into a single transaction. Users and crypto asset exchange companies have incentives to batch payments to save on transaction fees. Second, so-called layer 2 protocols built on top of the blockchain network often aim to increase scalability and transaction speed and to save on transaction costs ( Box 3 ). For example, Bitcoin stands at around 100 million transactions per year , but considering batching and layer 2 transactions, it can be estimated that Bitcoin currently processes

Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer
Whether in crypto assets or in CBDCs, design choices can make an important difference to the energy consumption of digital currencies. This paper establishes the main components and technological options that determine the energy profile of digital currencies. It draws on academic and industry estimates to compare digital currencies to each other and to existing payment systems and derives implications for the design of environmentally friendly CBDCs. For distributed ledger technologies, the key factors affecting energy consumption are the ability to control participation and the consensus algorithm. While crypto assets like Bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems.