In the wake of a tumultuous year for the cryptocurrency industry, international regulators are calling for stricter regulations to protect investors and maintain market integrity. On July 17, the Financial Stability Board (FSB), an international body that oversees and makes suggestions about the global financial system, released a report with a series of recommendations to ensure comprehensive and consistent regulation of the cryptocurrency sector.
The FSB Global Regulatory Framework for Crypto-asset Activities explicitly referred to the collapse of FTX and the cataclysmic demise of the TerraUSD stablecoin as events that “demonstrate the interlinkages between crypto asset markets and the traditional financial system,” saying that such disasters would underline the comprehensive development of cryptocurrencies. rules regarding crypto-asset activities.
Protect assets, minimize damage
The FSB, which is made up of regulators from dozens of jurisdictions worldwide, including the United States, the European Union, the United Kingdom and China, stressed in the report the need to protect client assets and avoid conflicts of interest.
“Some entities are not transparent about their governance structures and set up complex structures of affiliated entities that often fund each other,” the report said, “leading to acute conflicts of interest and increasing interconnectedness and the risk of contagion within crypto asset markets. ”
The past year, the report noted, has highlighted what the FSB considers to be the inherent volatility and structural vulnerabilities of cryptocurrencies and their associated entities. In addition to FTX’s major failure and that exchange’s mismanagement of client funds, the FSB pointed to the recent arrest of Celsius co-founder and former CEO Alex Mashinsky on charges of misleading investors and manipulating token prices for personal gain as examples of this trend.
The FSB’s call for tighter regulation also comes in the wake of the collapse of several crypto-focused banks, the temporary de-pegging of Circle’s USDC stablecoin, and the abrupt demise of the TerraUSD stablecoin in May 2022, which contributed to the start of a new crypto winter.
“Although spillovers [of these events] to the traditional financial system,” the report continued, “stress events in crypto asset markets caused significant losses for investors and eroded confidence in these markets.”
Improving global regulatory efforts
While the report highlights the similarities between the crypto world and traditional finance, part of the industry’s legal battles in the United States with bodies like the U.S. Securities and Exchange Commission (SEC) revolve around the debate over the legal distinctiveness of cryptocurrencies. crypto. The question of whether or not existing securities laws can be applied to digital assets remains an unanswered and hotly debated question, and not just in the United States.
Complicating the picture is the fact that approaches to cryptocurrency regulation vary widely around the world. While the European Union recently introduced a new law specifically tailored to cryptocurrencies known as the Markets in Crypto Assets (MiCA) Regulation, the SEC is seeking to apply existing rules originally designed for traditional financial instruments to the crypto- industry, an important point struggle in the industry.
However, the FSB encouraged all crypto asset players to begin adhering to its basic recommendations and standards as soon as possible. The final suggestions were made after a months-long consultation process, in which traditional finance companies advocated for stronger crypto controls. However, major crypto exchanges such as Binance and Coinbase have raised concerns that stricter regulations could potentially hinder innovation in the sector.
In September, both the FSB and the International Monetary Fund will release a report to the G20 presenting the combined findings of its work on macroeconomic and monetary issues and FSB’s Global Regulatory Framework for Crypto-asset Activities.
Editor’s Note: This article was written by an nft now contributor in collaboration with OpenAI’s GPT-4.
