Key Takeaways:
- FSB will introduce strict rules related to cryptocurrencies.
- The regulator will frame reports on protection against stablecoins.
The current volatile condition of the crypto market demands immediate changes in the regulatory framework of the industry. The recent CoinFLEX fiasco further stresses the statement. Soon after Luna’s downfall, South Korea started monitoring the market and introduced new rules to ensure the protection of the consumers.
Regulators of the US are also concerned about the happenings. Therefore, on July 11, the Financial Stability Board (FSB) announced the proposal for new rules to ensure “robust regulation and supervision” of virtual currencies.
To start with, FSB talks about the vulnerable position of crypto assets and stablecoins in the present market conditions. It also points out the “increasing interconnectedness” of these with the traditional financial system.
Then it started that though crypto assets and markets are supposed to be decentralized, they do not operate in a regulation-free space in the true sense. It also strongly supports the notion of the assets being bonded by regulation as it will help with the risks they pose. FSB also points out that there is an absolute need for an effective framework that will help ensure that in case the vulnerabilities of the market start acting like liabilities for consumers, the outcome will be the same as traditional financial activities.
Recently, the crypto exchanges have also been facing a series of incidents that are either leading to their insolvency or dragging them in a lengthy legal drama.
Looking at these incidents, FSB says that there is a need for the ongoing work of the regulator along with other international standard-setting bodies to address the financial stability risks stablecoins might pose. The organization says that it will continue to “facilitate cross-border and cross-sectoral cooperation among national financial authorities and international standard-setting bodies”.
The members of the organization will help in the implementation of applicable international standards into national regulatory and supervisory frameworks. They said that if stablecoins enter the mainstream payment system, they will also get into the framework.
The regulator will directly report to the G20 Finance Ministers and Central Bank Governors in October regarding regulatory and supervisory approaches to stablecoins and other virtual assets. FSB will prepare a public consultation report on the review of its high-level recommendations for the regulation, along with supervision and oversight of the “global stablecoin”. It will also include remedies that will help solve the loopholes, along with a public consultation report.
The efforts of the FSB and the international bodies will aim to minimize the risk of fragmentation and regulatory arbitrage. The members of the organization will welcome the CPMI-IOSCO guidance, Application of the Principles for Financial Market Infrastructures to stablecoin arrangements, which will be a significant step toward “same activity, same risk, same regulation”. The primary focus will lie on investor protection and market integrity.
