FSB Finalizes Global Crypto Regulatory Framework

FSB Finalizes Global Crypto Regulatory Framework

The Global Regulatory Framework for Crypto-Asset Activities: FSB’s Recommendations

The Financial Stability Board (FSB), an international body responsible for overseeing and advising on the global financial system, has recently released the final version of its global regulatory framework for crypto-asset activities. This framework aims to provide a comprehensive set of recommendations for companies involved in crypto activity, covering both the regulation, supervision, and oversight of crypto-asset activities and markets, as well as specific recommendations for “global stablecoin” arrangements.

The FSB’s objective in developing this regulatory framework is to ensure that crypto-asset activities are regulated in a manner that aligns with the principle of “same activity, same risk, same regulation.” This means that the framework takes into account the economic functions of crypto assets and the risks they pose, with the goal of addressing these risks effectively.

To further mitigate the risks associated with crypto assets, the FSB has collaborated with sectoral standard-setting bodies (SSBs) to develop a work plan that covers various areas, including anti-money laundering and countering the financing of terrorism (AML/CFT), data privacy, cyber security, consumer and investor protection, market integrity, and competition policy, among others.

The development of this regulatory framework by the FSB was prompted by a series of events that occurred in the crypto market at the beginning of 2022. The market experienced significant turmoil, with the collapse of Terra (LUNA), the third largest cryptocurrency ecosystem at the time, the bankruptcy of the FTX exchange, the crash of the crypto hedge fund Three Arrows Capital (3AC), and the subsequent banking crisis and global economic decline. These events highlighted the need to predict and protect against the risks posed by the high volatility of crypto-asset markets.

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It is important to note that the approach to regulating crypto markets differs across jurisdictions, with the US, Europe, and Asia having varying views on how to manage digital assets. In the case of the FSB, the regulatory framework it has provided calls for stricter regulation, but it does not cover all aspects of crypto-related activity. For instance, it does not include stablecoins and Central Bank Digital Currencies (CBDCs), which are important and popular tools offered by the industry.

Overall, the release of the FSB’s global regulatory framework for crypto-asset activities is a significant step towards ensuring the stability and integrity of the crypto market. By providing recommendations that take into account the economic functions and risks associated with crypto assets, the framework aims to create a more secure and regulated environment for companies involved in crypto activity. However, it is important for jurisdictions to continue collaborating and aligning their regulatory approaches to effectively address the challenges posed by this rapidly evolving industry.

Key Takeaways

• The FSB has released the final version of its global regulatory framework for crypto-asset activities, providing recommendations for the regulation, supervision, and oversight of crypto-asset activities and markets, as well as specific recommendations for “global stablecoin” arrangements.

• The framework aims to regulate crypto assets based on their economic functions and the risks they pose, in line with the principle of “same activity, same risk, same regulation.”

• The FSB has collaborated with sectoral standard-setting bodies (SSBs) to develop a work plan that addresses various risks associated with crypto assets, including AML/CFT, data privacy, cyber security, consumer and investor protection, market integrity, and competition policy.

• The framework was developed in response to a series of events in the crypto market that highlighted the need for better regulation to address the risks posed by high volatility.

• Different jurisdictions have different approaches to regulating digital assets, and the FSB’s framework calls for stricter regulation but does not cover all aspects of crypto-related activity, such as stablecoins and CBDCs.

• The release of the FSB’s regulatory framework is an important step towards ensuring the stability and integrity of the crypto market, but continued collaboration and alignment among jurisdictions is necessary to effectively address the challenges in this rapidly evolving industry.