The Financial Stability Board (FSB) of the G20 has recommended a global regulatory framework for crypto-asset activities. This framework is a response to the G20’s request for an effective regulatory, supervisory, and oversight framework for cryptoassets like Bitcoin.
In their recent publication on July 17, 2023, FSB noted that strong governance is essential in the growing cryptoasset sector to ensure the stability of the global financial system and address potential conflicts of interest, proper risk management, and transparency. The board also emphasized the urgent need for crypto businesses to adopt essential safety measures to prevent incidents similar to the recent explosions witnessed at the FTX exchange and other crypto-related tragedies.
The FSB noted that he failure of FTX in November 2022 exposed the risks associated with cryptocurrency enterprises and prompted it to recommend that all nations, including non-FSB members, adhere to the guidelines provided.
The FSB also claimed that recent events highlighted the possibility of spillovers from cryptoasset markets into the broader financial system and these spillovers could amplify the connections between the cryptoasset sector and traditional finance. Thus, it is crucial to implement effective measures, such as segregating customer funds from company cash, before the sector reaches a size that could potentially endanger financial stability.
FSB Secretary General John Schindler reportedly stated;
“[…] cryptoasset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules“.
Schindler further stated that the FSB’s framework clearly outlines the norms that should be followed and eliminates any grounds for parties to claim a lack of regulatory certainty.
The FSB also proposed “global baseline” minimal requirements. These requirements are designed to be flexible, and each jurisdiction can exceed these standards if they choose to do so.
Moving forward, the Basel Committee and the International Organization of Securities Commissions (IOSCO), both international banking and securities watchdogs, are expected to refine the regulations established by the FSB.
Meanwhile, the FSB’s members have committed to implementing the established regulations, and the FSB plans to conduct an evaluation of their implementation by the end of 2025.
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