The dawn of a more stringent global regulatory era looms over the crypto industry as it grapples with a unified global push for enhanced safeguards.
This comes in response to notorious incidents involving cryptocurrency firms, including the collapse of FTX exchange, marking a pivotal moment in the industry’s path towards maturity.
Introducing financial safeguards: A global mandate
The Financial Stability Board (FSB), an international body mandated by the G20, issued final recommendations for overseeing crypto-asset firms such as Bitcoin traders on Monday.
Alongside, it also updated guidelines for stablecoins, given recent events involving the collapse of TerraUSD/Luna coins. The FSB emphatically stated that there is no longer any room for these players to function outside the regulatory framework.
In these proposed universal safeguards, traditional finance’s well-established principles serve as the blueprint. The primary focus is on robust governance, effective risk management, and distinct segregation of customer and company funds.
This preemptive strike aims to ward off threats to financial stability that may emanate from the burgeoning crypto sector. Amplifying the urgency, the FSB pointed out the potential for spillover from the crypto industry into the broader financial system.
The collapse of the Bahamas-based FTX, despite being outside the FSB jurisdiction, underscored these vulnerabilities and solidified the call for worldwide application of the recommendations.
Aligning crypto with conventional standards
The crypto industry, which once revelled in the absence of regulatory oversight, must now adapt to this shift towards regulatory clarity.
Bitcoin, for example, recently rallied to a 13-month high following a legal victory for Ripple Labs Inc, underlining that regulatory acceptance can, in fact, boost the industry.
Simultaneously, the FSB’s ‘global baseline’ standards serve to cater to jurisdictions wishing to implement stricter regulations. The European Union, having already given the nod to the world’s first comprehensive set of rules for crypto markets, can be seen as a testament to this flexibility.
In line with the FSB’s initiative, global watchdogs like the Basel Committee and IOSCO are expected to refine these norms further.
While the FSB aims to review the application of these standards by the end of 2025, IOSCO has already proposed the first global approach to day-to-day crypto market regulation.
A future tailored to crypto industry norms
The push for a more comprehensive regulatory environment is driven by the past year’s high-profile cases of unethical behavior within the crypto industry.
The FSB has drawn on such incidents to construct a more robust framework, with a particular focus on safeguarding clients’ assets and curbing conflicts of interest.
Regardless of the variety in global approaches to crypto regulation, the FSB’s principles offer the flexibility needed to accommodate them.
As crypto industry stakeholders continue their march towards compliance, they can take solace in the fact that these new rules aren’t designed to reinvent the wheel but to merely extend traditional financial principles into the realm of crypto.
In this rapidly evolving landscape, the crypto industry finds itself at a crossroads. Amid warnings from firms like Binance and Coinbase that tougher rules could stifle innovation, traditional finance companies are pushing for stronger controls.
As the global regulatory environment tightens, the crypto industry has no choice but to adapt and evolve, with the ultimate goal of achieving a more secure and sustainable future.
