According to the Financial Stability Board, cryptocurrency platforms must clearly divide their functions and keep clients’ digital assets distinct from their own finances in order to prevent conflicts of interest.
A thorough worldwide regulatory framework for cryptocurrencies has been offered by the Financial Stability Board (FSB), a well-known international agency in charge of keeping track of the world financial system. The guidelines, which are addressed to the G20, the world’s 20 largest economies, call for a uniform regulatory strategy based on the tenet “same activity, same risk, same regulation.”
Ensuring Transparency and Safeguarding Client Assets
High-level recommendations for regulating cryptocurrencies and updated recommendations pertaining to global stablecoins are included in the FSB’s recommendations, which were made public in a note and two guidelines documents. The latter describes any stablecoin that could be used internationally.
The FSB highlights the necessity for cryptocurrency platforms to establish clear functional separation to prevent conflicts of interest and isolate client digital assets from their own funds in order to improve investor safety. Additionally, it emphasizes the value of strong international coordination and oversight between authorities.
Additionally, while recognising the need of privacy, the FSB asks local authorities to stop any actions that make it difficult to identify accountable parties, particularly when using decentralized finance (DeFi) protocols. According to the FSB, authorities must have access to the pertinent data they need to carry out their regulatory obligations.
Global Stablecoins and Regulatory Compliance
The FSB emphasizes the importance of stablecoin issuers having recognizable and accountable legal entities or people, referred to as a “governance body,” with regard to global stablecoins. Unless they are subject to prudential rules that are equal to those imposed on commercial banks, these issuers are obligated to keep reserve assets in a minimum 1:1 proportion.
Notably, the guidelines suggest that global stablecoin issuers may need to apply for licenses to operate in each country. The FSB highlights that regulators should only allow a worldwide stablecoin arrangement to operate if it complies with all legislative, regulatory, and oversight requirements of the relevant country, including receiving affirmative approval.
By the end of 2025, the FSB intends to assess how its suggestions have been implemented globally. In September 2023, it will also present a joint report to the G20 on current policies and regulatory challenges, working with the International Monetary Fund.
With its proposed global regulatory framework, the FSB has taken a big step toward unifying cryptocurrency laws around the world. These principles aim to ensure a safer and more resilient crypto ecosystem, eventually protecting investors and encouraging responsible innovation, by encouraging openness, responsibility, and compliance.