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.