In the wake of recent events that spotlight the inherent volatility and structural vulnerabilities of cryptocurrencies, the Financial Stability Board (FSB) of G20 Nations recently published its final recommendations for regulating crypto trading firms on July 17. This comes amidst a growing demand for a thorough legislative framework for digital assets. These recommendations propose setting standards on regulatory supervisory and oversight of crypto assets, key in steering innovation in the right direction.
Significantly, these recommendations follow after recent market shocks like the collapse of TerraUSD/Luna stablecoins and the subsequent events in FTX, reinforcing the need for basic measures across all crypto firms. The FSB maintains that these are necessary to avoid similar disruptions in the future. A critical perspective hints at FSB’s concern over crypto-engineered risks potentially spilling into the traditional finance ecosystem, potentially leading to financial instability.
These recommendations encompass three central areas: protection of customers’ assets, addressing possible conflicts of interest, and enforcing cross-border cooperation. The watchdog takes into consideration that different jurisdictions have unique experiences enforcing digital assets regulations, hence its approach is intended to promote a ‘same activity, same risk, same regulations’ principle to ensure flexible and technology-neutral implementation.
On a deeper level, the FSB aims to amplify oversight on crypto firms to avoid conflicts of interest and establish measures that secure risks and liabilities. Disclosures from these firms would be required to guarantee that customer finances remain separate.
Moreover, the FSB’s recommendation has reached a wider audience, extending out to non-member states, emphasized by the fact that FTX was Bahamas-based, and the Bahamas was not a part of the FSB. According to FSB secretary John Schindler, these regulations make it unmistakable that crypto firms can no longer operate outside the existing rules.
This is a step forward in managing crypto-market risks. Yet, on the flip side, the framework mainly addresses potential risks of financial instability, leaving specific risk categories associated with cryptocurrency activities untouched. Expectantly, the FSB anticipates further measures from organizations like the Basel Committee on Banking Supervision, the International Organization of Securities Commissions (IOSCO), among others to span over the gaps in the regulations.
Source: Cryptonews
