Global Watchdog Proposes Impartial Regulatory Framework for Crypto

• The Financial Stability Board (FSB) calls for stricter regulations in response to misconduct and volatility in the crypto industry.
• The FSB’s recommendations aim to establish an impartial regulatory framework emphasizing underlying risks.
• FSB has collaborated with international organizations to ensure coordinated monitoring of crypto-asset markets.

The whole of 2022 and early 2023 has featured some turbulent times for the crypto industry, which has been classified as a “potential threat to the wider financial system” by the Financial Stability Board (FSB) in its latest report published earlier today. Hence, the international finance watchdog has urged for more stringent regulations to protect the clients’ crypto assets and prevent conflicts of interest in response to numerous reports of misconduct that surfaced amidst the volatile year for cryptocurrencies.

FSB, comprising regulators from various jurisdictions such as the US, EU, China, and the UK, revealed that the published recommendations had been developed based on input gathered from public consultations and engagements with stakeholders. These suggestions strive to establish a regulatory framework that is impartial to technology and emphasizes the underlying activities and risks involved.

However, FSB notes that areas including anti-money laundering, data privacy, cyber security, consumer and investor protection, market integrity, competition policy, taxation, monetary policy, monetary sovereignty, and other macroeconomic considerations are not comprehensively addressed by the recommendations.

These recommendations are an expansion of earlier proposals introduced in October, aiming to prevent the types of activities that have been accused of being conducted by companies like FTX and Celsius. The FSB had then proposed centralizing stablecoin issuance and breaking up major crypto platforms. Klaas Knot, FSB chair, highlighted concerns over liquidity mismatches and inappropriate business models in the crypto ecosystem, emphasizing the need for comprehensive regulation.

According to FSB Secretary General, John Schindler clarified that the global framework does not aim to completely rewrite or create a new regulatory rulebook for crypto assets. He further acknowledged,

Crypto asset activities are not as different from traditional financial activities as some would have us believe, and similar rules should apply.

Schindler urged all crypto-asset players to begin adhering to these fundamental expectations and standards, even as jurisdictions strive to implement them.

The report notes that the FSB has collaborated closely with prominent organizations such as the International Monetary Fund, World Bank, OECD, Basel Committee on Banking Supervision, Bank for International Settlements’ Committee on Payments and Market Infrastructures, IOSCO, and the Financial Action Task Force. This collaborative effort aims to ensure effective coordination and mutual support in monitoring and regulating crypto-asset activities and markets.