G20’s Financial Stability Board (FSB) has called for global crypto regulations to address the issues and risks faced by the traditional financial system when dealing with cryptocurrencies. In a newly published 17-page report, the FSB proposed a global regulatory framework that incorporates stricter regulations and standardized frameworks to govern the digital asset industry. The agency emphasized the need for collaboration between jurisdictional financial authorities and standard-setting bodies to ensure strong regulations and oversight in the sector.
The report highlights notable failures and collapses in the industry, such as the FTX-saga and the Terra Ecosystem Collapse, and emphasizes the interlinkage between digital asset markets and traditional financial systems. While the impact on the conventional financial system was limited, the FSB argues that the risks could spill over and affect the other. It also mentions the high exposure of many digital assets to economic functionality, with exchanges relying on banks for fund transfers.
To address these issues, the FSB put forward nine recommendations, stating that any crypto activity similar to the conventional financial system should be subjected to equivalent regulations. The agency believes that these recommendations should serve as a basis for standard-setting bodies to create robust structures for addressing the industry’s challenges in their respective jurisdictions.
The joint report by the FSB and the International Monetary Fund (IMF), scheduled for September 2023, aims to establish a detailed blueprint for global crypto regulations. In May 2023, the IMF proposed 18 measures for global regulations of digital assets, with a focus on areas such as regulatory cooperation, cross-border risks, conflict of interest, market manipulation, client asset protection, operational and technological risks, retail access, and suitability.
While cryptocurrency has emerged as a global phenomenon with various benefits, it also poses underlying risks that require regulatory attention. While significant jurisdictions may develop their own regulations, a global regulatory framework is needed to ensure consistency and address the risks associated with digital assets. The FSB’s call for global crypto regulations reflects the increasing recognition of the need for comprehensive and standardized regulations in the growing digital asset industry.