Parul
The Financial Stability Board (FSB) published its global regulatory framework for crypto-asset activities on July 17 2023, to promote the comprehensiveness and international consistency of regulatory and supervisory approaches.
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 G20 tasked the FSB to coordinate the delivery of an effective regulatory, supervisory and oversight framework for crypto-assets. The framework takes account of lessons from events of the past year in crypto-asset markets and feedback received during the FSB’s public consultation.
Reacting to the announcement the Managing Partner TMT Law Practice, Abhishek Malhotra said, “The FSB High Level recommendations on regulation of crypto assets and stable coins arrangements will address the long-postured concerns with such activities, and guide regulatory frameworks towards framing the guidelines to better protect the global financial system, domestically as well as internationally. While the recommendations do not address specific concerns such as AML/ CFT, data privacy, cyber security, the recommendary measures towards disclosure, data collection, reporting, good governance requirements will instill confidence, and likely have ripple effect across these specific areas as well.”
“Coordinated regulation standards, cooperation is stressed upon, and will usher in these financial assets in a cohesive manner into the global financial system. Recommendations towards a robust legal claim process will further mitigate the user risks exposed during FTX’s collapse. Interestingly, these recommendations are not applicable upon Central Bank Digital Currencies (CBDCs), which will be regulated heavily,” he added.
The framework consists of two distinct sets of recommendations:
i) High-level recommendations for the regulation, supervision and oversight of crypto-asset activities and markets.
ii) Revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements.
The final recommendations draw on the implementation experiences of jurisdictions and build on the principles – ‘same activity, same risk, same regulation’; high-level and flexible; and technology neutral – that informed the consultative framework.
In light of events of the past year, the 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
iii) strengthening 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 has been working closely with the sectoral standard-setting bodies (SSBs) and international organisations to ensure that the work underway regarding the monitoring and regulation of crypto-asset activities and markets is coordinated, mutually supportive, and complementary.
The global framework includes a shared workplan that the FSB and SSBs have developed for 2023 and beyond. Through this, they will continue to coordinate work under their respective mandates to promote the development of a comprehensive and coherent global regulatory framework, including through the provision of more granular guidance by SSBs, monitoring and public reporting.
