Speaking at a virtual conference of the IMF, RBI Governor T Rabi Shankar has urged the importance of obtaining adequate information on crypto assets and transactions before formulating any regulatory framework. He said that the current information on crypto assets and their movements is not either complete or even misleading.
Regulations need to be built on clear insights into what a cryptocurrency is, and their function. There also needs to be single communication on regulations. He mentioned the Crypto-Asset Reporting Framework developed by OECD that was recently presented to the G20.
What is the Crypto-Asset Reporting Framework (CARF)?
The G20 group of countries, now headed by India, has asked the OECD to create a framework for “automatic exchange of information” between countries for crypto assets – tokens, coins and NFTs held and traded by crypto owners. This framework will be presented to the finance ministers and central bank governors of the group countries in the next G20 meet in October next year.
The CARF is called a transparency initiative to address the widespread use of crypto assets for both investment and finance. The need for CARF arises because crypto assets can be transferred without anyone’s knowledge and there are no intermediaries like banks to keep track and monitor the movement of virtual money. Thus billions of dollars can be transferred between any two entities in a matter of seconds – either among individuals or companies – with no one knowing their identities. Blockchain trackers can at most reveal that large sums were transferred between two wallet addresses.
Regulators need to ascertain nature of cryptocurrencies first
But there are crypto exchanges and service providers too, and there are no clear regulations to govern them as crypto related businesses – one of the major confusions for regulators is to decide whether a cryptocurrency is to be considered a share, a commodity or just a new form of money – this remains vague.
The G20 and the OECD are concerned about tax evasion and illegal activities that can take the crypto route easily to avoid detection. Crypto assets aren’t covered by their common reporting standard (CRS), whose aim is to bring tax transparency.
A press note from OECD says: “The Common Reporting Standard has been very successful in the fight against international tax evasion. In 2021, over 100 jurisdictions exchanged information on 111 million financial accounts, covering total assets of EUR 11 trillion,” OECD Secretary-General Mathias Cormann said. “Today’s presentation of the new crypto-asset reporting framework and amendments to the Common Reporting Standard will ensure that the tax transparency architecture remains up-to-date and effective.”
The automatic reporting of crypto assets
The automatic reporting of crypto assets every year is a major feature of the new CARF being created. It will be thus standardized, like the CRS.
CARF will be focus on “any digital representation of value” which uses cryptography and distributed ledger or any similar technology. Any service that facilitates crypto transactions for customers will have to file a report under CARF.
The model rules of CARF can be adapted into local and domestic laws such as those in India. It also has comments that can be used by administrators for implementation.
Further work on the legal and operational aspects of the CARF will begin soon, and it will be promoted for implementation. The timeline to start this automatic exchange of information will also be created. The main CRS could also be modified to include digital assets. All of these activities will be matched with an update to the legal and operational framework as well.
The full OECD report can be downloaded from here: https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.htm
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