Global rules leave crypto firms with no place to hide, says G20's Financial Stability Board
2 min read 17 Jul 2023, 04:16 PM ISTGlobal rules for supervising crypto firms have been published by the G20's Financial Stability Board (FSB). The FSB said all countries should apply the recommendations, even those not members of the watchdog
PremiumGlobally agreed rules leave crypto firms with no option but to introduce basic safeguards to prevent the blow-ups seen at FTX exchange and other crypto casualties, the G20's Financial Stability Board said on Monday.
The FSB published on Monday final recommendations requested by the G20 on supervising firms that trade cryptoassets such as bitcoin. The watchdog also revised its existing recommendations for stablecoins in light of the demise of TerraUSD/Luna coins.
“The events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets and related players. They have also illustrated that 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 FSB said.
The collapse of FTX in November 2022 highlighted vulnerabilities from crypto firms and the FSB said that all countries should apply the recommendations, even those that are not members of the watchdog. FTX was based in the Bahamas, not an FSB member.
"Therefore, cryptoasset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules," FSB Secretary General John Schindler told reporters as quoted by Reuters.
"These players can no longer argue there is a lack of regulatory clarity, as our framework makes clear the standards that should apply." Schindler said.
The final recommendations draw on the implementation experiences of jurisdictions and build on the principles – ‘same activity, same risk, same regulation’; high-level and flexible; and technology neutral – that informed the consultative framework. In light of events of the past year, the FSB has strengthened both sets of high-level recommendations in three areas: (i) ensuring adequate safeguarding of client assets; (ii) addressing risks associated with conflicts of interest; and (iii) strengthening cross-border cooperation.
The recommendations focus on addressing risks to financial stability and do not comprehensively cover all specific risk categories related to crypto-asset activities. Central Bank Digital Currencies (CBDCs), envisaged as digitalised central bank liabilities, are not subject to these recommendations.
The FSB norms are expected to be made more granular by additional measures from global banking and securities watchdogs Basel Committee and IOSCO.
The FSB has been working closely with the sectoral standard-setting bodies (SSBs) and international organisations to ensure that the work underway regarding the monitoring and regulation of crypto-asset activities and markets is coordinated, mutually supportive, and complementary. The global framework includes a shared workplan that the FSB and SSBs have developed for 2023 and beyond. Through this, they will continue to coordinate work under their respective mandates to promote the development of a comprehensive and coherent global regulatory framework, including through the provision of more granular guidance by SSBs, monitoring and public reporting.
*With inputs from agencies
