Advantages of using Chatgpt

 A SELF-REGULATORY  FRAMEWORK FOR  DIGITAL CURRENCY 

In addition to clear and targeted regulations, effective cryptocurrency regulation requires a robust self-regulatory framework involving effective partnership between industry and regulators. This is a matter ofregulatory architecture or structure and not simply a matter of substantive content, as with the specific regulatory norms discussed in the preceding section. A self-regulatory process or framework involves the setting, policing, and enforcement of standards governing firms or individuals within an industry by private actors or industry professionals, rather than by external public regulators. In other words, self-regulation involves, structurally, a degree of private sector involvement in the regulatory process, by the regulated industry itself.


There are a number of benefits to this approach. Self-regulation is said to lower monitoring and enforcement costs: A self-regulatory body will usually have more technical expertise and know-how than external regulators, and this is especially true in fastmoving industries with a high rate of technological change, which by nature often involve regulators playing catch-up with industry know-how. It is also said to create incentives for voluntary compliance by the industry, reduce costs ofamending and adapting standards, and also increase collaborative behavior and positive interaction between the industry and regulators. Self-regulation can also help to foster trust between consumers, regulators, and the industry and can thereby encourage further investment and innovation.


Self-regulation has thus proved suitable in industries characterized by dynamism, complexity, or innovation. For instance, self-regulation has been used as a regulatory tool in connection with complex financial markets with significantly fast-moving financial innovations, such as the regulation offinancial derivatives, as in through the use ofswap execution facilities and futures exchanges acting as self-regulatory organizations in post 2008 US Dodd-Frank Title VII regulations. Self-regulation reflects a regulatory attitude ofaccommodating disruptive innovation and is premised on innovation being a necessary component of a competitive and productive economy.


In addition, self-regulation is particularly appropriate for regulating Internet-based
activities and businesses, such as in the cryptocurrency ecosystem, because it allows for regulatory structures that “mirror” the Internet as a global, private, and decentralized network. Indeed, regulation ofthe “code” layer (as distinct from the “physical” or “content” layer) ofthe Internet is and has always been carried out through the self-regulatory initiatives ofthe Internet Corporation for Assigned Names and Numbers (Lessig, 2001).


Varying degrees ofself-regulation are possible, dependingon the degree ofcollaboration between the self-regulatory organization and government agencies, the powers granted to the self-regulatory organization, or the legal or binding character (or lack thereof) ofthe selfregulation norms. Indeed, depending on various calibrations ofthese factors, self-regulatory organizations can play a gap-filling interpretive role within a legal framework with “hard” enforceable rules, exercise a rule-making function but without any formal supervisory or enforcement functions, or take on full-fledged regulatory functions that cover the entire gamut ofrule making, supervising compliance, and enforcement.


Self-regulation tends to work best when paired with government involvement or support. Indeed, commentators have stated that “self-regulation cannot function without the support of public authorities,” whether that support is found in willful noninterference, endorsement or ratification, or through active collaboration and enforcement support (Bertelsmann Foundation, 1999). Self-regulation should not be seen as a substitute for traditional regulation through legislation and formal enforceable rules, but rather as a complement to such a legal framework.


Self-regulation may involve the use of “soft” norms through nonbinding codes of conduct or informal guidelines. Such norms do not come attached with legal sanctions for noncompliance and instead rely more on reputational sanction and market incentives for compliance. In certain industries involving sophisticated participants, soft norms can be more effective than binding and enforceable rules. Indeed, the “regulatory uncertainty principle” holds that when a rule crystallizes as a binding financial regulation, it will cause adaptive behaviors and changes in the regulated institutions’ risk management practices such as to water down the rule’s effectiveness—in other words, it will result in regulatory arbitrage to circumvent the rule (Caruana, 2014). In such an environment, the flexibility and adaptability of soft norms may be more effective in incentivizing voluntary compliance, especially when normative content is generated from within the industry.


These principles are not merely abstract; they are readily applicable in the Singapore context. Indeed, self-regulation is consistent with the MAS’s Tenets ofEffective Regulation, which expressly recognize that a “self-regulatory approach” can be “effective and appropriate” when applied in the right circumstances. Thus, the “StakeholderReliant” principle “acknowledge[s] and encourage[s] the contribution that financial institutions individually, the financial industry collectively and other stakeholders” can make in “achieving outcomes aligned with the MAS’ supervisory objectives”. Likewise, the “Business-Friendly” principle espouses due regard to “business efficiency and innovation” and calls for regulators to “adopt a consultative approach to regulating the industry”.


MAS’s Tenet 2 on “Shared Responsibility” clearly articulates the MAS’s regulatory philosophy that “[t]he design of regulation should wherever appropriate provide for rather than take away from financial institutions and stakeholders’ responsibility and incentives to contribute towards regulatory outcomes”—specifically, with the regulated institutions, including their “board and senior management” and the “industry collectively,” taking on such responsibility for regulatory outcomes. The MAS does rely, in practice, on self-regulatory organizations to carry out several regulatory functions; for example, the Singapore Foreign Exchange Market Committee and the Singapore Exchange carry out self-regulation in relation to conduct or market integrity issues in foreign exchange and securities markets.


In relation to cryptocurrencies, the Association of Crypto-Currency Enterprises and Start-ups, Singapore (ACCESS) presents a ready candidate for a cryptocurrency selfregulatory organization. ACCESS was formed on May 30, 2014 as a registered society with the Registry ofSocieties in Singapore, and its objectives are, first, to promote dialog with regulators and other stakeholders and, second, to conduct “self-regulation” of the cryptocurrency industry, including through establishing a code of conduct for firms that will become a criterion for membership. ACCESS appears ready and willing to take on the mantle of self-regulation, although it is still unclear at this stage what kind of regulatory role it could play within the system and what degree of collaboration with regulators would be possible.


For the reasons above, a robust self-regulatory framework involving effective partnership between ACCESS and regulators such as MAS would produce contextually adaptable regulations that complement the legal framework, lower regulatory costs, and support innovation—and should be encouraged if Singapore is to augment its position as a regional or global hub for cryptocurrencies and next-generation financing.