A G20 Watchdog Believes that Global Rules Should Guide Crypto Companies’ Activities

On July 17, the G20's Financial Stability Board (FSB) published its final recommendations on regulating crypto trading firms.

The financial watchdog's recommendations were mainly to curb issues on regulatory supervisory and oversight of crypto assets pursuant to innovation. Apart from that, the FSB further revised its former recommendations about stablecoins due to the crash of TerraUSD/Luna stablecoins and its contagion in space.

The FSB opines that a global rule will make crypto firms more focused on integrating the basic measures that will protect them and investors from a reoccurrence of the FTX saga.

Cryptocurrencies Are Intrinsically Volatility with diverse Structural Vulnerabilities, FSB

In the report, the Financial Stability Board (FSB) stated that the FTX and Terra crash in 2022 was solid proof that crypto is very volatile. It also said many structural vulnerabilities exist in the sector, encompassing networks and related participants.

Further, the watchdog pointed out how a mistake from one player in the crypto industry can reverberate through the entire industry, referencing the 2022 crashes and subsequent negative trends it left in its wake.

But apart from affecting other players in the crypto industry, the regulator fears a situation where the spill-over effects from crypto risks reach the traditional finance ecosystem destabilizing the sector.

On that note, the FSB said, as recent events have illustrated, if linkages to traditional finance were to grow further, spillovers from crypto assets markets into the broader financial system could increase.

As such, the FSB believes that regulators should incorporate universal safeguards guiding the traditional finance sector into the crypto regulatory framework before further expansion and imminent threats.

The watchdog focused its recommendations on three important areas. These have to do with the security of customers' assets and the enforcement of cross-border cooperation. It also made recommendations on addressing risks related to conflicts of interest.

But it noted that implementing these recommendations will not be universal but based on a jurisdictional approach.The FSB recognized that every jurisdiction is different in its approach when enforcing digital assets rules.

The FSB Framework Provides Regulatory Clarity, Secretary Schindler

As Reuters reported, FSB Secretary John Schindler made some statements regarding the watchdog's interest in its recommendations.

According to Schindler, the recommendations are not for the G20 countries alone. Every crypto player worldwide should integrate them, whether under FSB or not, since even the FTX that affected all other players was a Bahamas-registered entity.

As such, Schindler said;

Therefore, cryptoasset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules.

Regarding the yearlong argument that there's no regulatory clarity guiding crypto operations, the secretary said these players can no longer argue there is a lack of regulatory clarity, as our framework makes clear the standards that should apply.

The FSB aims to tighten oversight on crypto-related firms and manage risks and liabilities from their activities.

But there are some limitations since the recommendations only addressed some of the risks associated with cryptocurrency activities. It only focused on financial instability from crypto firms and their activities.

As such, the watchdog expects further inputs from other bodies such as the International Organization of Securities Commissions (IOSCO), BIS's Basel Committee on Banking Supervision, etc.

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