The Financial Stability Board (FSB), one of the world’s most powerful financial watchdogs, said it will quickly establish and enact regulations on the cryptocurrency industry by early 2023.
The FTX collapse has highlighted the need for global cryptocurrency regulation to protect investors from companies that take advantage of a regulatory vacuum to engage in illicit activities.
While some jurisdictions have implemented regulations for digital assets, there is a need to establish standard global cryptographic standards.
As tweeted by Avinash Shekhar, head of an India/Singapore-based financial tech company, “FSB made recommendations for the regulation, supervision & oversight of crypto activities, markets & ‘Global Stablecoin’ arrangements. This seeks to promote the comprehensiveness and international consistency of regulatory and supervisory approach.”
Shekhar further added that “The FSB identified vulnerabilities related to the crypto-sector that may have financial stability implications. FSB prescribed the international stance on the way forward regarding regulation.”
According to the outgoing FSB Secretary General, Dietrich Domanski, one of the goals of the regulation is to change the perception that crypto regulation is “slow and does not focus on a single common goal.”
What Regulations Could the FSB Implement?
In the coming months, the regulator will set a timetable for regulators around the world to follow on the first set of recommendations. The FSB has been assessing the risks in the crypto industry for more than 5 years, and has a clear strategy on what its regulation should be like.
The FSB recommendations also detail areas where policymakers need “more clarity.” It is this lack of clarity that has led to the failures of major crypto platforms like Terraform and FTX, which the regulator plans to prevent in the future.
Contrary to the belief that regulators have been hostile to cryptocurrencies, Domanski says they have been “quite accommodating,” hence the need to urgently address these risks.
Finally, the FSB recommends that cryptocurrency service providers be held to the same standards as banks if they provide similar services.
Clarity in Governance and Transparency are Paramount
Domanski recalled the meteoric growth of Terraform Labs and FTX, which would not have collapsed if they had been run like banks because they would not have met “good governance criteria.”
This is why the FSB recommends clarity in governance and transparency arrangements, as well as measures to protect client funds.
It appears that cryptocurrency is a key priority at FSB meetings today, and the regulator could create a dedicated committee to shape future crypto regulations.
It should be remembered that in May 2022, Sheila Warren, CEO of the Crypto Council for Innovation, moderated a panel discussion titled “DeFi Future: Inside the Creation of a New Financial System.” Warren stated that the cryptocurrency sector is currently witnessing “regulatory madness,” noting that there is not a single jurisdiction that is not focused on cryptocurrency innovation right now, “This is the most important of our time. We are currently laying the groundwork for crypto to move forward,” she said.
By Audy Castaneda
