The Financial Stability Board (FSB), an esteemed international organization responsible for monitoring the global financial system, has announced the development of a comprehensive global regulatory framework for cryptocurrencies. This groundbreaking set of guidelines, recommended to the G-20 leading economies, is built upon the fundamental principle of "same activity, same risk, same regulation."
On July 17, the FSB publicly released a public note and two distinct guideline documents. These documents consist of high-level recommendations for regulating cryptocurrencies in general and revised high-level recommendations tailored explicitly to "global stablecoins." The latter term encompasses stablecoins that may be utilized across multiple jurisdictions.
According to the FSB's guidelines, crypto platforms must ensure the segregation of their client's digital assets from their funds and establish clear functional separations to prevent any potential conflicts of interest. Simultaneously, regulators foster tight cross-border cooperation to prevent platforms from evading oversight.
The FSB acknowledges the importance of privacy and stresses that local regulators must ensure that no activities hinder the identification of responsible entities, including decentralized finance (DeFi) protocols. The sixth high-level recommendation highlights the necessity for authorities to access data deemed necessary and appropriate to fulfill their regulatory, supervisory, and oversight responsibilities.
Regarding global stablecoins, the FSB emphasizes that any stablecoin issuer must have one or more identifiable and responsible legal entities or individuals constituting a governance body. Additionally, issuers are required to maintain reserve assets in a minimal 1:1 proportion unless they adhere to equivalent prudential requirements comparable to those imposed on commercial banks.
Significantly, the FSB introduces a potential obligation for global stablecoin issuers to obtain permits to operate in each jurisdiction. As stated in the guidelines:
"Authorities should not permit the operation of a GSC arrangement in their jurisdiction unless the GSC arrangement meets all of their jurisdiction's regulatory, supervisory, and oversight requirements, including affirmative approval."
The FSB plans to assess the global implementation of its recommendations by the end of 2025. In September 2023, in collaboration with the International Monetary Fund (IMF), the FSB will present a joint report to the G20, addressing existing policies and regulatory concerns.
Recently, the Association for Financial Markets in Europe (AFME) cited the FSB's position, urging lawmakers in the European Union to incorporate decentralized finance (DeFi) into the initial pan-European crypto framework.
The Financial Stability Board's introduction of a global regulatory framework for cryptocurrencies marks a significant milestone in the industry's evolution. By advocating for a consistent approach to regulation, the FSB aims to mitigate risks while fostering innovation in the crypto space. The emphasis on privacy and responsible governance demonstrates a balanced approach that prioritizes both user protection and industry development.
However, the potential requirement for global stablecoin issuers to obtain permits in each jurisdiction could pose challenges and increase the regulatory burden. As the FSB and IMF continue to monitor and assess the implementation of these guidelines, it is crucial for stakeholders to actively participate in shaping effective and inclusive regulations that promote a secure and thriving crypto ecosystem.
