The Financial Stability Board (FSB), a global financial watchdog, is intensifying its call for countries to swiftly implement comprehensive crypto regulations for the rapidly evolving markets after releasing this week, a worldwide regulatory framework for crypto-asset activities. The aim to establish a global foundation for the regulation and supervision of cryptocurrencies.
John Schindler, the General Secretary of the FSB, emphasised the urgent need for regulatory frameworks during a seminar hosted by the Bank for International Settlements, underlining the dynamic nature of the crypto landscape.
Schindler outlined the FSB’s ambitious goals for the crypto markets in 2024, focusing on the establishment of minimum international standards, consistent global implementation of these standards, and ongoing monitoring. The catalyst for this urgency, according to Schindler, is the swift emergence of novel financial instruments like the recently approved spot Bitcoin exchange-traded funds (ETFs) in the United States.
The approval of Bitcoin ETFs in the U.S. has brought institutional investors a new avenue to participate in the crypto market. Schindler raised thought-provoking questions about the potential impact of increased accessibility on the fundamental dynamics of digital assets. Acknowledging the profound and rapid changes within the crypto space, he expressed uncertainty about the lasting implications of Bitcoin ETFs.
The FSB, composed of influential economies and global financial organisations, is responsible for monitoring and providing guidance on the international financial system. In its 2024 work program, the FSB explicitly includes the implementation of crypto regulations as a key objective, signalling a concerted effort to address the evolving challenges posed by the crypto industry.
The regulatory approach endorsed by the FSB is built on the principle of “same activity, same risk, same regulation.” This approach aims to align the regulation of crypto activities with the established norms governing traditional finance. The final recommendations, issued by the FSB in July, provide a comprehensive framework for the global regulation of crypto assets.
Given the recent collapses of major crypto exchanges, such as FTX and Terraform Labs, resulting in losses of $60 billion and subsequent bankruptcy filings in 2022, the FSB’s recommendations are designed to prevent similar catastrophic events in the future. The FSB plans to monitor the implementation of these recommendations across jurisdictions and present an update to the G20 in October.
While there is a growing consensus on the need for international cooperation in harmonising crypto regulations, the FSB is simultaneously witnessing surprisingly quick progress at the regional level. Schindler noted that the FSB’s regional groups, led by senior central bankers, are already reporting significant progress, showcasing a commendable swiftness in their actions.
Despite the urgency, the FSB assures that it won’t impose penalties for non-compliance. Instead, Schindler hopes that peer pressure and the potential negative outcomes for non-compliant jurisdictions will encourage adherence to the recommended regulatory frameworks. He stressed that the consequences of non-compliance could lead to a scenario where crypto asset providers avoid such jurisdictions, resulting in unfavourable outcomes for the local economy.
In addition to the FSB, other international bodies, such as the Financial Action Task Force (FATF), are actively working on global guidelines for crypto regulations, particularly in the context of anti-money laundering measures. The collective efforts of these global entities reflect a shared commitment to fostering a secure and well-regulated environment for the burgeoning cryptocurrency industry.
As the crypto landscape continues to evolve, the FSB’s emphasis on rapid regulatory action underscores the need for a proactive and collaborative approach to address the challenges and opportunities presented by the growing influence of digital assets in the global financial system.
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