The Financial Stability Board (FSB) – a global organization responsible for overseeing and providing guidance on the worldwide financial system, has recently finalized a global regulatory framework for crypto.
The FSB brings together regulators from around two dozen jurisdictions, including the US, EU, China, and the UK, and this framework is intended to provide guidance and promote consistency in the regulation of crypto assets across different jurisdictions.
The Financial Stability Board’s guidelines for regulating crypto assets are based on the principle of “same activity, same risk, same regulation,” and were developed in consultation with the G20 countries, an intergovernmental forum consisting of 19 countries and the European Union.
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The recommendations have been based on the proposal made in October, aiming to prevent the type of behavior companies like FTX and Celsius have been accused of.
Two Sets Of Recommendations
The document comprises two sets of recommendations: one that provides high-level guidance for the regulation of crypto assets in general, and another that offers revised high-level recommendations specifically for global stablecoins.
The revised recommendations for global stablecoins aim to address the unique risks associated with these assets and ensure that they are subject to appropriate oversight and regulation. This includes measures related to anti-money laundering/combating the financing of terrorism AML/CFT, consumer protection, and financial stability.
Different global players are already pursuing varying approaches to the regulation of crypto assets. For instance, the European Union has developed a new law, the Markets in Crypto Assets (MiCA) regulation, while the United States Securities and Exchange Commission (SEC) is attempting to apply existing, decades-old rules meant for traditional financial instruments.
However, the FSB’s principles are designed to be flexible enough to accommodate both approaches. But officials have emphasized the importance of continuity in their implementation. Ultimately, though, the goal of the FSB’s recommendations is to promote greater consistency and clarity in the regulation of crypto assets across different jurisdictions.
Safeguarding Crypto Assets And Avoiding Conflicts of Interest
The FSB emphasizes the importance of safeguarding clients’ digital assets and avoiding conflicts of interest in the operation of crypto platforms. Given this, it recommends that platforms segregate clients’ assets from their own funds and establish clear functional separation.
Moreover, regulators must work closely together across borders to prevent platforms from circumventing regulatory oversight. This is because the FSB recognizes the importance of privacy and acknowledges that local regulators must ensure that data access is granted only as necessary and appropriate to fulfill regulatory, supervisory, and oversight mandates.
One of the FSB’s key recommendations for global stablecoins is that stablecoin issuers should have identifiable and responsible legal entities or individuals in place, forming a governance body.
In addition, the FSB states that stablecoin issuers should hold reserve assets in a minimum 1:1 proportion unless they are subject to adequate prudential requirements that are equivalent to commercial bank standards.
Furthermore, the FSB has called for global stablecoin issuers to obtain the necessary permits to operate in each jurisdiction where they plan to offer their services. The organization also plans to conduct a review of the implementation of its recommendations globally by the end of 2025.
The FSB revealed it will collaborate with the International Monetary Fund (IMF) to produce a joint report on existing policies and regulatory issues related to crypto assets, which will be presented to the G20 in September 2023.
