“Gaps and Inconsistencies” in Crypto Framework Pose Risks: FSB

The Financial Stability Board’s (FSB) says that “significant gaps and inconsistencies” exist in the implementation of its global regulatory framework for cryptoassets, that could pose risks to both financial stability and the development of a resilient digital asset ecosystem.

The FSB’s Thematic Peer Review on the FSB Global Regulatory Framework for Crypto-Asset Activities, says while jurisdictions have made “notable advancements” toward implementing the recommendations on crypto-asset markets and activities, few have finalised their regulatory frameworks for global stablecoins. Even where regulatory frameworks are finalised, full alignment with the FSB recommendations remains limited, the report warns, especially with regard to stablecoin arrangements and crypto-asset service providers.

The review calls on the FSB and its member jurisdictions to prioritise work in this area and to do more to reach full and consistent implementation. Specifically, it puts forward some recommendations to address outstanding issues in terms of implementation progress, comprehensiveness and consistency, and cross-border cooperation and coordination. “Implementation progress remains incomplete, uneven and inconsistent,” says Arthur Yuen, deputy chief executive of the Hong Kong Monetary Authority and chair of the team that prepared the report. “This creates opportunities for regulatory arbitrage and complicates oversight of the inherently global and evolving crypto-asset market.”

The FSB report was published alongside a peer review from IOSCO in the same subject, while the FSB focuses on financial stability, the IOSCO report follows that organisation’s mandate by looking at market integrity and investor protection. It underscores the need for information sharing across the regulatory lifecycle, including during authorisation, supervision, and enforcement stages. “Enhanced international cooperation and coordination is essential to address regulatory arbitrage and ensure consistent and coherent oversight,” IOSCO states.

Both reports provide jurisdictions and international standard-setting bodies, including the FSB and IOSCO themselves, with actionable recommendations (in the FSB report) and enhancements (in the IOSCO report), to prioritise and align the implementation of regulatory frameworks for crypto-assets.

The FSB report can be accessed here, and the IOSCO report can be accessed here