While regulators across the globe are proposing different types of legislation for the crypto and digital asset sectors, the Financial Stability Board (FSB) is advocating for a framework for international regulation.
The FSB’s proposals, which are out for comment until Dec. 15, aim to promote consistency in the regulation of the crypto sector through international cooperation, coordination and information sharing.
The group hopes to finalise the framework by mid-2023.
At the same time, the FSB issued revised proposals for supervising global stable coin arrangements.
“The two sets of recommendations are closely interrelated, reflecting the interlinkages between stablecoins and the broader crypto-asset ecosystem,” the FSB said.
Although the two were developed independently, they are intended to be consistent and coordinated.
The proposals are based on the principle of “same activity, same risk, same regulation,” which has become global regulators’ preferred approach to regulating the crypto sector alongside conventional financial markets.
The FSB noted that efforts to shine a brighter light into the fledgling crypto sector have accelerated this year after a crash in the value of many crypto assets, which also helped reveal a series of “structural vulnerabilities in those markets.”
It added, “Where crypto assets and intermediaries perform an equivalent economic function to one performed by instruments and intermediaries of the traditional financial sector, they should be subject to equivalent regulation.”
While the regulators acknowledged that the rules for crypto assets should account for their novel features and risks, the organisation also said that high standards should apply to crypto assets that could be used for payments, or stores of value such as stable coins, “as they could pose significant risks to financial stability.”
The FSB said the various standards setters that are also working to address risks in the crypto sector, including banking and securities regulators, will coordinate with each other and with the FSB.
A review of the progress toward implementing the FSB’s final recommendations will take place by the end of 2025, it said.
Calls for regulation have grown louder given the volatility of the crypto market. The crash of bitcoin and ethereum “exposed inappropriate business models, significant liquidity and maturity mismatches, the extensive use of leverage, and a high degree of interconnectedness within the crypto-asset ecosystem,” the group said.
These vulnerabilities were amplified by “a lack of transparency and disclosures, flawed governance, inadequate consumer and investor protections, and weaknesses in risk management.”
