G20's Financial Stability Board finalises global regulatory framework for crypto assets: All you need to know

The G20's Financial Stability Board (FSB), that monitors and makes recommendations on the global financial system, has announced that global rules now leave cryptocurrency firms with no place to hide. It will rather force companies to introduce basic safeguards to prevent the blow-ups seen at FTX exchange and other crypto casualties.

The FSB's recent announcement comes in response to the increasing influence of cryptocurrencies on the global economy. Cryptocurrencies are digital tokens that allow people to make payments directly to each other through an online system.

They have no legislated or intrinsic value; their worth is simply what people are willing to pay for them in the market. The decentralized nature of cryptocurrencies allows citizens living in countries with currency instability to trade freely across borders, creating a level of economic equality.

The international body published final recommendations requested by the G20 on supervising firms that trade cryptoassets such as bitcoin. The watchdog also revised its existing recommendations for stablecoins in light of the demise of TerraUSD/Luna coins.

“The events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets and related players. They have also illustrated that the failure of a key service provider in the crypto-asset ecosystem can quickly transmit risks to other parts of that ecosystem. As recent events have illustrated, if linkages to traditional finance were to grow further, spillovers from crypto-asset markets into the broader financial system could increase," the FSB said.

FSB has strengthened both sets of high-level recommendations in three areas: (i) ensuring adequate safeguarding of client assets; (ii) addressing risks associated with conflicts of interest; and (iii) strengthening cross-border cooperation.

The collapse of FTX in November 2022 highlighted vulnerabilities from crypto firms and the FSB said that all countries should apply the recommendations, even those that are not members of the watchdog. FTX was based in the Bahamas, not an FSB member.

"Therefore, cryptoasset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules," FSB Secretary General John Schindler told reporters.

"These players can no longer argue there is a lack of regulatory clarity, as our framework makes clear the standards that should apply." Schindler said.

The FSB has further proposed high-level recommendations to promote a consistent regulatory framework, which includes essential activities and interconnectedness of crypto-asset markets, applicable international standards, and regulatory and supervisory approaches to crypto-asset activities.

With inputs from Reuters

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