FSB Publishes Recommendations for Global Regulatory Framework

FSB Publishes Recommendations for Global Regulatory Framework

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The Financial Stability Board (FSB) published its finalized global regulatory framework for crypto assets.

On Monday, the Financial Stability Board (FSB) published its recommendations for a global regulatory framework for crypto-assets to “promote the comprehensiveness and international consistency of regulatory and supervisory approaches.”

FSB Bases Framework on Principle of “Same Activity, Same Risk, Same Regulation”  

The FSB is an international organization that monitors the global financial system. The organization published guidelines for a global approach to crypto-related activities.

The board was tasked by the Group of 20 Nations (G20) to coordinate the delivery of an effective regulatory, supervisory and oversight framework for crypto-assets in light of recent events that took place in the digital asset industry.

The G20 previously said in a document summarizing the outcomes of meetings held with finance ministers and central bank governors that the FSB, IMF (International Monetary Fund), and BIS (Bank for International Settlements) are to deliver papers and recommendations establishing standards for a global crypto regulatory framework.

The FSB’s document consists of two sets of recommendations: high-level recommendations for crypto regulation in general and “revised high-level recommendations” for a “global stablecoin.”

FSB Maintains Respect for Privacy

According to the FSB’s recommendations, crypto platforms must segregate clients’ digital assets from their own funds and must clearly separate their functions to avoid conflicts of interest. Regulators are responsible for ensuring tight cross-border cooperation and oversight.

Despite stricter oversight measures, the FSB respects the principle of privacy. The international organization demands local regulators to ensure that there is no activity that “may frustrate the identification of the responsible entity or affiliated entities.” the regulator points to DeFi protocols in its recommendation of privacy and states:

Authorities should have access to the data as necessary and appropriate to fulfil their regulatory, supervisory and oversight mandates.

FSB Requires Stablecoin Issuers to Have At least One “Governance Body”

In its guidelines, the FSB addressed global stablecoin arrangements (GSCs) across jurisdictions to address their potential risks at a domestic and international level while supporting responsible innovation and providing adequate flexibility for jurisdictions to implement domestic approaches.

The board mandates any stablecoin issuer to have one or more identifiable and responsible individuals or legal entities it calls a “governance body.” It further requires issuers to maintain minimum reserve assets at a 1:1 ratio unless the issuer “is subject to adequate prudential requirements” equivalent to commercial bank standards.

The FSB also introduced a potential obligation for “global stablecoin” issuers to obtain a permit to operate in each jurisdiction. Guidelines state:

Authorities should not permit the operation of a GSC arrangement in their jurisdiction unless the GSC arrangement meets all of their jurisdiction’s regulatory, supervisory, and oversight requirements, including affirmative approval.

Implementation of Recommendations To Be Reviewed by End 2025

The guidelines published by the FSB make up the first part of a global crypto framework, with further guidance from the IMF and BIS to come.

The FSB and the IMF will jointly submit “a synthesis paper integrating the macroeconomic and regulatory perspectives of crypto assets” in September 2023.

The IMF will also independently report on the “potential macro-financial implications of the widespread adoption” of CBDCs. At the same time, the BIS will provide a report on analytical and conceptual issues and possible risk mitigation strategies related to crypto assets.

The FSB said it will review the state of implementing its recommendations worldwide by the end of 2025.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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