Written by Hazel J. Greene, Senior Analyst

The Financial Stability Board (FSB), a global organization responsible for overseeing and providing guidance on the worldwide financial system, has recently announced the finalization of a comprehensive regulatory framework for crypto assets. As the FSB brings together regulators from around two dozen jurisdictions, this framework aims to promote consistency and offer guidance in the regulation of crypto assets across different jurisdictions.

In consultation with the G20 countries, the FSB has developed guidelines for regulating crypto assets based on the principle of “same activity, same risk, same regulation.” These recommendations address the need for consistent oversight and regulation of crypto assets to prevent undesirable behavior observed in the sector, such as the issues faced by companies like FTX and Celsius.

The FSB’s regulatory framework consists of two sets of recommendations. The first set provides high-level guidance for the regulation of crypto assets in general, while the second set offers revised high-level recommendations specifically for global stablecoins. The latter aims to address the unique risks associated with stablecoins and ensure that they are subject to appropriate oversight and regulation, including measures related to anti-money laundering, consumer protection, and financial stability.

Different jurisdictions currently adopt varying approaches to regulating crypto assets. The FSB’s principles, however, have been designed to accommodate both approaches while emphasizing the importance of continuity in their implementation. Ultimately, the FSB’s recommendations strive to promote greater consistency and clarity in the regulation of crypto assets across different jurisdictions.

To protect clients’ digital assets and avoid conflicts of interest, the FSB recommends that crypto platforms segregate clients’ assets from their own funds and establish clear functional separation. Additionally, regulators should collaborate across borders to prevent platforms from evading regulatory oversight. Recognizing the importance of privacy, the FSB underlines that access to data should be granted only as necessary and appropriate to fulfill regulatory mandates.

The FSB’s recommendations for global stablecoins emphasize the necessity for stablecoin issuers to have identifiable and responsible legal entities or individuals forming a governance body. Moreover, stablecoin issuers should maintain reserve assets in a minimum 1:1 proportion, unless subject to equivalent prudential requirements as commercial banks. The FSB also calls for stablecoin issuers to obtain necessary permits in each jurisdiction where they plan to offer their services.

By the end of 2025, the FSB plans to conduct a global review of the implementation of its recommendations. Additionally, it intends to collaborate with the International Monetary Fund (IMF) on a joint report exploring existing policies and regulatory issues related to crypto assets. The report will be presented to the G20 in September 2023.

With the finalization of a global regulatory framework for crypto assets, the Financial Stability Board aims to bring consistency, clarity, and safeguards to the regulation of crypto assets across jurisdictions. These recommendations, developed in consultation with the G20 countries, address the unique risks associated with stablecoins and emphasize the importance of client asset protection and avoiding conflicts of interest. By working closely with global regulators and conducting future reviews, the FSB seeks to promote responsible and secure growth in the crypto asset sector.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.