On Monday, the Financial Stability Board (FSB), the world’s most known global financial watchdog group, released a public note along with two guideline documents, focusing on the regulation of cryptocurrencies and global stablecoins.
FSB announced that it has completed its global regulatory framework for crypto asset activities, aiming to promote the comprehensiveness and international consistency of regulatory and supervisory approaches on an international scale.
The framework is based on the principle of ‘same activity, same risk, same regulation’ and provides a strong basis for ensuring that crypto-asset activities and so-called stablecoins are subject to consistent and comprehensive regulation, commensurate to the risks they pose, while supporting responsible innovations potentially brought by the technological change.
FSB noted that the events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets and related players. Additionally, the failure of a key service provider in the crypto-asset ecosystem can quickly transmit risks to other parts of that ecosystem.
As recent events have illustrated, if linkages to traditional finance were to grow further, spillovers from crypto-asset markets into the broader financial system could increase.
The guidelines consist of two distinct sets of recommendations:
- High-level recommendations for the regulation, supervision and oversight of crypto-asset activities and markets.
- Revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements.
The recommendations focus on addressing risks to financial stability, and they do not comprehensively cover all specific risk categories related to crypto-asset activities. They take account of lessons from events of the past year in crypto-asset markets, as well as feedback received during the public consultation of the FSB’s proposals. Central Bank Digital Currencies (CBDCs), envisaged as digitalised central bank liabilities, are not subject to these recommendations.
FSB recommended that it is crucial for crypto platforms to separate clients’ digital assets from their own funds and establish clear functional separations to avoid conflicts of interest. Also, regulators must ensure close cross-border cooperation and oversight.
Addressing the topic of privacy, the FSB emphasizes the need for local regulators to prevent any activities that could impede the identification of responsible entities, including decentralized finance (defi) protocols.
The recommendations are addressed to financial regulatory, supervisory and oversight authorities at a jurisdictional level. They set out the key objectives that an effective regulatory and supervisory framework should achieve but are high-level and flexible so that they can be incorporated into a wide variety of regulatory frameworks. The recommendations establish a global regulatory baseline, and some jurisdictions may also decide to take more restrictive regulatory measures.
The recommendations therefore do not comprehensively address all specific risk categories related to crypto-asset activities, such as: Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT); data privacy; cyber security; consumer and investor protection; market integrity; competition policy; taxation; monetary policy; monetary sovereignty; and other macroeconomic concerns.
The G20 tasked the FSB to coordinate the delivery of an effective regulatory, supervisory and oversight framework for crypto assets.
The FSB has been working closely with the International Monetary Fund, World Bank, the Organization for Economic Cooperation and Development (OECD), the Basel Committee on supportive.pervision, the Bank for International Settlements’ Committee on Payments and Market Infrastructures, the International Organization of Securities Commissions (IOSCO), and the Financial Action Task force to ensure that the work underway regarding the monitoring and regulation of crypto-asset activities and markets is coordinated and mutually supportive
The FSB and the sectoral standard-setting bodies (SSBs) have developed a shared workplan for 2023 and beyond, through which they will continue to coordinate work, under their respective mandates, to promote the development of a comprehensive and coherent global regulatory framework commensurate to the risks crypto-asset markets activities may pose to jurisdictions worldwide, including through the provision of more granular guidance by SSBs, monitoring and public reporting.
The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability.
It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.
The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
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