Financial Stability Board Finalizes Global regulatory Framework for Crypto Assets

The Financial Stability Board (FSB) has finalized a global regulatory framework for cryptocurrencies that will ensure coordinated regulation of the crypto industry.

The board in a press release on Monday 17 July said the framework will promote the comprehensiveness and international consistency of regulatory and supervisory approaches.

The G20 had earlier tasked FSB to coordinate the delivery of an effective regulatory, supervisory and oversight framework for crypto-assets. As finalized by the FSB, the framework takes into account lessons from events of the past year in crypto-asset markets and feedback received during the FSB’s public consultation.

“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,” the board said in the press release.

“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,” it further stated.

The proposed framework has two distinct recommendations, namely High-level recommendations for the regulation, supervision and oversight of crypto-asset activities and markets, and a revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements.

The Call for Global Crypto Regulation

Before now, several monetary bodies have called for a global approach to crypto regulation. Foremost among them is the International Monetary Fund (IMF) which has since said that cryptocurrencies have the tendency to cause global financial instability.

The IMF has also concluded that a ban on cryptocurrencies is not feasible, so a better approach would be to create a global regulatory framework. It looks like that dream has been achieved with the FSB’s framework, which specifically focuses on risks to financial stability.

“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.”

It is worthy of note that the recommendations are based 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.”

Also based on the events of the past year, the board 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.

Good or Bad for Crypto?

The crypto industry has been around for over a decade, but has no regulatory oversight in many countries until recently. This has led to confusion and different approaches to regulation in different countries, making some countries favorable and others unfavorable.

With a global regulatory framework however, this will change either for good or bad. For good if the regulatory framework is good enough to let the industry thrive globally, and for bad if it will be harsh on the industry as is the case with the US.

In all though, there’s a need for a regulatory framework that will clearly spell out what is expected of the industry, so that it can operate in full compliance with the law, which will allow it to thrive.

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