The Financial Stability Board (FSB) made a statement on July 11 that recommendations on subjecting crypto-assets to regulation and supervision will be presented to the G20 finance ministers and central bank governors in October. The international body plans on providing regulatory and supervisory aspects of stablecoins and other crypto-assets. The Basel Committee on Banking Supervision will monitor the financial systems and propose rules with the goal of preventing financial crises.
“The FSB is working to ensure that crypto-assets are subject to robust regulation and supervision,” read the statement. It further added, “The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system.” The FSB proposed in its statement that an effective regulatory framework should ensure that crypto-asset activities-based risks similar to traditional financial activities are subject to the same regulatory outcomes while taking account of new features of crypto-assets, and harnessing potential benefits of the technology behind them.
The cryptocurrency market’s series of downturns, and collapse of the TerraUSD stablecoin has led to demands for regulatory action. In June, the European Union policy-makers decided upon a landmark bill to govern cryptocurrency issuers and service providers, with an emphasis on rules for stablecoins, which are cryptocurrencies pegged to the value of other assets like sovereign currencies. Crypto-assets are mainly used for speculative purposes, and currently remain mostly outside the scope of, or in non-compliance with financial safeguards, of which participants of these activities should be fully aware. The watchdog said that it is committed to using the enforcement powers within the legal framework in its jurisdiction to promote compliance and act against any violations by crypto service providers.
In February, the FSB published a report that warned against how the unregulated cryptocurrency sector could derail global financial stability, not least because of its rapid growth. In May, FSB Chairman Klaas Knot said that its organisation is “well placed” to take the lead in setting up a “coherent global regulatory framework for crypto assets”.
The price of Bitcoin has dropped by close to 75 percent from its all-time high over the past seven months, and it has declined to 60 percent in the three months since April. A number of other prominent crypto-assets have experienced even steeper declines over the same period. “The recent turmoil in crypto-asset markets highlights the importance of progressing ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets, including so-called stablecoins,” read the statement. The watchdog has assured that it will continue to facilitate cross-border and cross-sectoral cooperation among national financial authorities and international standard-setting bodies as they work towards developing a common understanding of the wide spectrum of crypto-assets.