FSB Finalises Crypto Regulatory Recommendations

The Financial Stability Board (FSB) has published two sets of high-level recommendations for the regulation, supervision and oversight of cryptoasset and stablecoin activities and markets as it seeks to finalise a unified and comprehensive global regulatory framework for the asset class.

The vast majority of the recommendations have been flagged up before by the FSB, the latest guidelines reflect feedback from a consultation with the industry last year – the result of which has actually been a minor strengthening of the recommended rules to further regulate stablecoins by potentially requiring issuers to apply for a permit in all jurisdictions in which it operates.

The FSB says the framework is based on the principle of “same activity, same risk, same regulation” and provides “a strong basis for ensuring that cryptoasset activities and so-called stablecoins are subject to consistent and comprehensive regulation, commensurate to the risks they pose, while supporting responsible innovations potentially brought by the technological change”.

Introducing the recommendations, the FSB says that the events of the past year have highlighted the “intrinsic volatility and structural vulnerabilities” of cryptoassets and related players. They have also illustrated how the failure of a key service provider in the cryptoasset 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 warns.

The recommendations are strengthened in three specific areas. Firstly, they seek to ensure the adequate safeguarding of client assets; secondly, they address the risks associated with conflicts of interest; and lastly, they strengthen cross-border cooperation.

The recommendations focus on addressing risks to financial stability and do not comprehensively cover all specific risk categories related to crypto-asset activities. Central Bank Digital Currencies (CBDCs), envisaged as digitalised central bank liabilities, are not subject to these recommendations, the FSB states.