The Financial Stability Board (FSB), an international body that supervises the worldwide financial system, has released a sweeping regulatory framework aimed at establishing consistent and comprehensive governance of crypto-asset activities globally. Rooted in the principle of ‘same activity, same risk, same regulation’, this blueprint could transform the regulatory landscape for digital currencies, thereby encouraging stability in the rapidly evolving sector.
The FSB undertook a comprehensive examination of past events and public consultation feedback in response to the market volatility and structural vulnerabilities inherent to crypto-assets. The result is a two-pronged approach: creating high-level recommendations for crypto-asset activities and markets, and revising guidelines for global stablecoin arrangements.
FSB’s regulatory propositions emphasize the necessity of adequate client asset protection, addressing risks linked to conflicts of interest, and fortifying cross-border cooperation. However, the guidelines don’t cover Central Bank Digital Currencies (CBDCs) and some specific risk categories.
Enforcing regulation: A closer look at the recommendations
The framework calls for crypto platforms to distinctly segregate clients’ digital assets from their funds, aiming to circumvent potential conflicts of interest. This stipulation extends to global stablecoin issuers, who are urged to maintain reserve assets in a 1:1 minimal proportion, unless the issuer meets adequate prudential requirements akin to commercial bank standards.
Furthermore, the FSB’s guidelines could make it mandatory for ‘global stablecoin’ issuers to procure a permit to operate in each jurisdiction, setting the stage for heightened scrutiny of their operations.
Interestingly, the FSB’s approach also acknowledges the privacy challenges intrinsic to the sector, particularly with decentralized finance (DeFi) protocols. The framework stipulates that authorities should have access to necessary data to fulfill their regulatory and oversight mandates. The guidelines also underscore the need for an identifiable ‘governance body’ for each stablecoin issuer.
The FSB and its collaborating sectoral standard-setting bodies (SSBs) and international organizations are poised to monitor and regulate crypto-asset activities and markets. A shared workplan for 2023 and beyond sets the stage for a comprehensive and coherent global regulatory framework.
The international body has set its sights on evaluating the implementation status of its recommendations by the end of 2025. Additionally, in partnership with the International Monetary Fund, it plans to deliver a joint report on existing policies and regulatory challenges to the G20 by September 2023.
The regulatory framework and its subsequent implementation represent a critical turning point in global crypto regulation, potentially paving the way for a more controlled and stable digital asset market.