The Financial Stability Board (FSB), the international organization entrusted with overseeing the global financial system, has introduced an encompassing regulatory framework for cryptocurrencies. This pivotal announcement results from extensive feedback and critical analysis of the past year’s crypto-asset market events. Also, the new regulations seek to ensure the integrity of the global financial system by providing comprehensive and consistent rules to govern crypto activities, including the burgeoning domain of so-called stablecoins.
Streamlined regulatory approach
A significant feature of the new framework is its principle of ‘same activity, same risk, same regulation.’ This regulatory philosophy underscores the FSB’s commitment to providing a level playing field in the global financial system and mitigating the potential risks and vulnerabilities associated with crypto-assets.
The framework made public on July 17 is divided into two sets of recommendations. The first outlines the high-level regulations for the general oversight and supervision of crypto-asset activities and markets. The second set addresses regulating and supervising “global stablecoin” arrangements.
This global regulation aims to safeguard client assets and confront potential conflicts of interest by ensuring that crypto platforms segregate client digital assets from their funds. Moreover, the FSB calls for strict cross-border cooperation to enhance oversight and manage potential risks effectively. The regulations also demand that authorities access necessary data appropriately, ensuring transparency and accountability in the crypto market.
Balancing innovation and stability in global stablecoin management
With an eye on the future, the FSB also focuses on regulating global stablecoins—cryptocurrencies pegged to an external reserve asset. However, the board mandates that issuers of global stablecoins need to hold reserve assets in a 1:1 minimal proportion unless subject to sufficient prudential requirements equivalent to commercial bank standards.
Furthermore, the FSB recommends that authorities should not allow the operation of a global stablecoin arrangement in their jurisdiction unless it meets all regulatory, supervisory, and oversight requirements, including affirmative approval. This potentially groundbreaking regulation will enforce global stablecoin issuers to obtain the necessary permits to operate in each jurisdiction.
The road ahead
The FSB plans to review the status of the implementation of these recommendations globally by the end of 2025. By September 2023, the FSB will collaborate with the International Monetary Fund to deliver a joint report on existing policies and regulatory issues to the G20.
This regulatory framework presents a crucial step forward in the global regulation of the crypto market. By balancing the need for innovation with financial stability and investor protection, the FSB’s recommendations offer a robust foundation for the future of digital finance.
