FSB to report to G-20 on supervisory approaches to stable coins, crypto assets

The Financial Stability Board, on Monday, said it will report to the G-20 Finance Ministers and central bank Governors in October on the regulatory and supervisory approaches to stablecoins and other crypto assets.

In its statement, which comes amid the recent volatility in crypto asset markets, the FSB said these assets and markets must be subject to effective regulation and oversight, in line with the risks they pose, both at the domestic and international levels.

“The FSB will submit to that meeting a public consultation report on the review of its high-level recommendations for the regulation, supervision and oversight of ‘global stablecoin’ arrangements, including how existing frameworks may be extended to close gaps and implement the high-level recommendations,” it said.

Based in Basel, Switzerland, the FSB is an international body that monitors and makes recommendations about the global financial system.

It also plans to submit a public consultation report that proposes recommendations for promoting international consistency of regulatory and supervisory approaches to other crypto-assets and crypto-asset markets, and strengthening international cooperation and coordination.

“These combined efforts of the FSB and the international standard setting bodies are aimed at minimising the risk of fragmentation and regulatory arbitrage,” it further said.

The global financial watchdog noted that the recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities, and the issue of their increasing inter-connectedness with the traditional financial system.

“The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem,” it highlighted, adding that it may have spill-over effects on important parts of traditional finance such as short-term funding markets.

An effective regulatory framework must ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.

Bitcoin prices

The FSB’s statement comes at a time when crypto markets across the world have been in a melt down in what is being termed as the crypto winter. Bitcoin prices have crashed to levels of $20,500.

The agency also stressed that crypto-asset service providers must, at all times, ensure compliance with existing legal obligations in the jurisdictions in which they operate.

Previously, in February, the FSB had warned of emerging risks from crypto assets to global financial stability. Then, in its 2022 work programme, it had said it would continue work on the financial stability and regulatory and supervisory implications of technological innovation, with a particular focus on various forms of crypto-assets, including decentralised finance (DeFi).

“Given the increased interconnections in the financial system and surface for cyber attacks, enhancing operational and cyber resilience will remain important items on the FSB agenda,” it had said at the time.