FSB Releases Proposals for Tougher Global Crypto Framework

FSB Releases Proposals for Tougher Global Crypto Framework

The Need for Improved Global Digital Asset Regulation

In the rapidly evolving world of cryptocurrencies and blockchain technology, the need for a robust regulatory framework has become increasingly apparent. To address this, the Financial Stability Board (FSB), an international financial body, has recently called for improved global digital asset regulation, with the safety of user assets at the center of policies.

The FSB’s rationale for stricter regulation is based on the principle of “same activity, same risk, same regulation.” This means that entities engaging in similar activities should be subject to the same level of regulation to ensure a level playing field and protect users.

One of the primary concerns highlighted by the FSB is the commingling of user funds. This practice, which involves mixing user assets with the platform’s assets, has been a contributing factor in the collapse of numerous crypto-related entities, including exchanges and banks.

The FSB’s proposals aim to address this issue by requiring a clear distinction between user funds and platform assets. This separation would make it easier for regulators to audit firms and ensure transparency across different jurisdictions. By enhancing the safeguarding of client assets, addressing conflicts of interest, and strengthening cross-border cooperation, the FSB aims to mitigate the risks associated with commingling user funds.

Stablecoins and the De-pegging Headache

The FSB has also emphasized the need for stricter regulations regarding stablecoins, particularly global stablecoins used in multiple jurisdictions. Stablecoins are cryptocurrencies designed to maintain a stable value by pegging them to a reserve asset, such as a fiat currency or a basket of assets.

To maintain safe best practices, stablecoin issuers should obtain a permit in their primary jurisdiction. This permit would ensure compliance with regulatory, supervisory, and oversight requirements. Additionally, issuers should establish a “governance group” responsible for ensuring accountability.

To prevent stablecoins from losing their pegs, issuers must either hold 1:1 reserve assets or be subject to the same requirements placed on commercial banks. This ensures that stablecoins maintain their intended stability and are not susceptible to sudden de-pegging, which can have significant implications for users and the broader market.

Disclosure and Regulatory Scrutiny

The FSB’s recommendations also emphasize the importance of full compliance and disclosure on the part of crypto firms. Regulators should have access to necessary data to fulfill their regulatory, supervisory, and oversight mandates. This access enables regulators to monitor and scrutinize the activities of crypto firms effectively.

Central Bank Digital Currencies (CBDCs)

The FSB has exempted Central Bank Digital Currencies (CBDCs) from these recommendations, considering them to have significantly lower risks compared to other crypto assets. CBDCs are digital forms of fiat currency issued and regulated by central banks. Given the central banks’ authority and responsibility in issuing and maintaining the stability of national currencies, CBDCs are subject to a different regulatory framework.

Conclusion

The FSB’s call for improved global digital asset regulation reflects the growing recognition of the need for oversight and protection in the blockchain industry. By addressing concerns such as commingling user funds, stablecoin regulations, and enhanced disclosure, the FSB aims to create a safer and more transparent environment for users and investors.

As the blockchain industry continues to evolve, it is crucial for regulators to strike a balance between fostering innovation and ensuring the integrity and stability of the financial system. With the implementation of the FSB’s recommendations, the global digital asset landscape can become more secure and conducive to the growth of blockchain technology.