In a further step forward towards global crypto regulation, the Financial Stability Board (FSB), an international organisation that oversees the global financial system, has emphasised the need for crypto firms to implement basic safeguards to prevent potential disruptions in the market. Responding to the recent incidents, such as the collapse of FTX exchange, the FSB has released final recommendations for supervising firms involved in trading crypto assets like Bitcoin. These guidelines, which also include revised recommendations for stablecoins, aim to establish a level playing field and mitigate risks to financial stability.
Recognising the growing significance of the crypto industry, the FSB’s recommendations emphasise the adoption of robust governance practices, the prevention of conflicts of interest, and effective risk management. Additionally, the guidelines stress the importance of ensuring that customer funds are kept separate from company funds, thereby safeguarding investor assets. By incorporating these safeguards from mainstream finance, crypto firms can mitigate potential risks and enhance overall market stability.
The FSB acknowledges that the interconnectedness between traditional financial systems and crypto markets can lead to spillover effects, impacting the broader financial system. The collapse of FTX in November 2022 exposed vulnerabilities within the crypto industry, prompting the FSB to advocate for the adoption of their recommendations by all countries, including those not directly associated with the watchdog.
FSB Secretary General John Schindler asserts that crypto asset players can no longer operate outside the regulatory framework or disregard existing rules since the FSB’s guidelines provide clarity on the standards that should be followed. In a recent Reuters report, he commented, “Crypto asset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules.”
The resurgence of Bitcoin and the crypto sector, as evidenced by its recent 13-month high, highlights the importance of implementing comprehensive regulatory measures. Ripple Labs’ legal victory against regulatory challenges further underscores the need for clarity regarding the classification of tokens under securities laws. While the European Union has already approved comprehensive regulations for crypto asset markets, the FSB’s “global baseline” minimum standards accommodate jurisdictions that seek to implement more stringent rules.
In conjunction with the FSB’s recommendations, global banking and securities watchdogs such as the Basel Committee and the International Organisation of Securities Commissions (IOSCO) are expected to introduce supplementary measures to strengthen regulatory oversight. In May, IOSCO proposed the first global approach to regulating day-to-day operations in the crypto market. These collective efforts aim to establish a comprehensive regulatory framework that ensures the long-term stability and integrity of the crypto industry.
As members of the FSB commit to applying the agreed-upon norms, the organisation plans to review their implementation by the end of 2025. This evaluation will assess how effectively the guidelines have been adopted and incorporated into regulatory frameworks across various jurisdictions. It will also provide an opportunity to identify areas for improvement and adapt to the evolving landscape of the crypto industry.
With the crypto industry rapidly expanding, global regulators are taking proactive steps to establish comprehensive rules and safeguards. The FSB’s final recommendations for supervising crypto firms and its revised guidelines for stablecoins aim to mitigate risks and enhance financial stability. By adhering to these global standards, crypto asset players can contribute to the overall integrity and sustainability of the market. As additional measures are introduced by organisations such as the Basel Committee and IOSCO, the regulatory framework surrounding cryptocurrencies will continue to evolve, ensuring a safer and more transparent environment for investors and participants alike.
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