Crypto Needs Uniformity and Rigor after 2022’s Crisis, FSB Reveals

Crypto Needs Uniformity and Rigor after 2022’s Crisis, FSB Reveals

The
Financial Stability Board (FSB) has issued a global regulatory framework for
crypto-asset activities. This move is aimed at bolstering the comprehensiveness
and international uniformity of crypto regulatory and supervisory approaches. The
move comes at a time when more is being said and done around the world in terms
of defining a legal framework for the digital asset market.

FSB Aims for Global
Consistency in Crypto Regulation

This
framework acknowledges the inherent volatility and structural vulnerabilities
of crypto-assets and their ecosystem players. Events over the past year
underscored the potential for a key service provider’s failure to transmit risks across the crypto-asset ecosystem rapidly. It brings a risk of potential
spillover into the broader financial system if linkages with traditional
finance intensify.

The FSB’s
regulatory framework, assigned by the G20, comprises two sets of distinct
recommendations regarding cryptocurrencies and stablecoins separately. Both
sets of recommendations are based on the principle of the ‘same activity, same
risk, same regulation’.

“Final
recommendations incorporate learnings from events of the past year in
crypto-asset markets and feedback received during the FSB’s public consultation,”
the international regulatory body commented in a press release.

The consultative framework further explains additional information and has been improved in three areas in response to events over the past year, including FTX and Terra collapse.
These enhancements aim to ensure adequate protection of client assets, address
risks associated with conflicts of interest, and strengthen cross-border
cooperation.

Notably,
these recommendations focus on mitigating financial stability risks and do not
exhaustively cover all specific risk categories related to crypto-asset
activities. Central Bank Digital Currencies (CBDCs), viewed as digitalized
central bank liabilities, are not subject to these recommendations.

The FSB, in
collaboration with sectoral standard-setting bodies (SSBs) and international
organizations, has been working towards coordinated regulation of crypto-asset
activities and markets. The framework includes a shared workplan for 2023 and
beyond.

Crypto Regulations Remain
Inconsistent

The
expectations of the FSB are one thing, and reality is another. The actions of
regulators in the US, Europe, and Asia show that different jurisdictions
have different views on what should be done with digital assets.

At the time
when the United States declared open war on decentralized exchanges including Binance and Coinbase, Wall Street giants began to seek their chances in this
market. Since June, the market has been debating the chance of introducing
exchange-traded funds (ETFs) tracking Bitcoin’s (BTC) spot prices.

The first
unified cryptocurrency regulations package for the digital assets market was
adopted in Europe. However, individual countries still treat this asset class
differently. The mood in Europe is generally not positive either, which is why some
exchanges are deciding to flee to other jurisdictions.

Currently,
Asia and the Middle East are the most eager to take over the role of
cryptocurrency hubs. Hong Kong has created a new legal framework that opened
the digital assets market to retail investors and foreign companies, and the
United Arab Emirates (UAE) have openly expressed its desire to become a dominant
player in this space.

This article was written by Damian Chmiel at www.financemagnates.com.

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