FSB Finalizes Global Crypto Regulatory Framework

The Financial Stability Board (FSB), the swiss regulatory organization, has recently finalized a comprehensive regulatory framework for crypto-asset activities

FSB’s framework aims to promote international consistency and ensure that crypto-assets and stablecoins are subject to appropriate and comprehensive regulation, aligned with the risks they pose. The FSB’s recommendations have been refined based on lessons learned from recent events in the crypto-asset markets and feedback received during a public consultation.

Enhancing Regulatory Consistency for the Crypto Market

The FSB’s framework is built upon the principle of “same activity, same risk, same regulation,” emphasizing the need for consistency across jurisdictions. By addressing risks associated with crypto-asset activities and markets, this regulatory framework aims to strengthen the overall stability of the financial system. 

It consists of two recommendations: high-level recommendations for regulating crypto-asset activities and markets in general and revised high-level recommendations targeting “global stablecoin” arrangements.

The FSB has focused on reinforcing three key areas within these recommendations: protecting client assets, mitigating conflicts of interest, and enhancing cross-border cooperation. By bolstering safeguards, addressing potential conflicts, and strengthening collaboration between regulatory bodies, the FSB aims to ensure that the crypto market operates securely and transparently.

Acknowledging specific risk categories

While the recommendations prioritize addressing risks to financial stability, it’s important to note that they do not cover all specific risk categories related to crypto-asset activities. 

Central Bank Digital Currencies (CBDCs), digital representations of central bank liabilities are not subject to these recommendations. The FSB’s focus remains on promoting stability and safeguarding the financial system.

Coordinated efforts and global consistency

The FSB has worked closely with sectoral standard-setting bodies (SSBs) and international organizations to ensure coordination and mutual support in monitoring and regulating crypto-asset activities and markets. 

The global framework includes a shared work plan developed by the FSB and SSBs for 2023 and beyond to foster a comprehensive and coherent global regulatory framework. This collaboration will provide granular guidance through SSBs, monitor implementation progress at the jurisdictional level, and facilitate public reporting.

Moving forward

With the finalization of this global regulatory framework, the FSB fulfills its mandate from the G20 to coordinate the establishment of an effective regulatory and supervisory framework for crypto-assets. As the crypto market evolves, the FSB remains committed to monitoring developments, assessing risks, and exploring regulatory and supervisory implications.

In conclusion, the FSB’s comprehensive regulatory framework represents a significant step towards ensuring consistent and robust oversight of the crypto-asset ecosystem. With strengthened recommendations and a focus on international coordination, this framework establishes a solid foundation for promoting financial stability while accommodating the unique characteristics of crypto-assets.

FSB is not the first organization to draw up a crypto regulatory framework 

While the FSB must be commended for trying to bring some form of stability to the virtual assets market, an organization like the International Organization of Securities Commissions (IOSCO) deserves credit for drawing up what many experts believe was the first global approach to regulating the crypto asset market. 

In May, IOSCO proposed standards for the thriving decentralized finance sector and it covered dealing with market manipulation, conflicts of interest, custody of crypto assets, cross-border regulatory cooperation, treatment of retail customers, and operational risks.  

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