Global Crypto Oversight Tightens as the G20 Watchdog Responds to Financial Risks

• Financial

In the wake of last year's unprecedented crypto-market collapse, the world's largest economies are gearing up for tighter regulation of the ever-volatile cryptocurrency industry. The Financial Stability Board (FSB), the international body that monitors and makes recommendations about the global financial system, has sounded the alarm, warning of potential wider financial risks if the crypto-market continues unregulated.

The FSB revealed that its global regulatory framework for crypto-asset activities was rattled by last year's market crashes, particularly the incidents involving prominent players such as FTX and Terra. The repercussions of these crashes echoed beyond the world of cryptocurrencies and stirred discussions about the inherent instability of this burgeoning sector.

In a press release, the Swiss-based FSB stated, "The events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets and related players. They have also illustrated that the failure of a key service provider in the crypto-asset ecosystem can quickly transmit risks to other parts of that ecosystem."

A Roadmap for Crypto Oversight

To address these financial vulnerabilities, the FSB has crafted a list of nine top-level recommendations for regulators.

The guidance covers a wide range of concerns, from cross-border cooperation between regulators to governance requirements for crypto issuers, and the mandatory disclosure of information by industry players. The revised set of recommendations also takes into account the input gathered during the FSB's public consultation on the subject.

In response to recent events, the FSB has fortified several of its proposals, including measures aimed at ensuring better protection of client assets and addressing risks associated with conflicts of interest. Monsur Hussain, head of financial institutions research at Fitch Ratings, said, "The FSB has taken the view that crypto markets require further regulation to protect stakeholders and financial stability, rather than the view that regulating crypto confers legitimacy”.

Industry Responses and Anticipated Outcomes

Reactions from the industry were mixed, though many welcomed the call for clearer regulation. Konstantin Horejsi, chief product officer at digital asset trading platform Blocktrade, stated, “The crypto community at large was never asking for special treatment with regard to regulation, but was simply asking for the establishment of boundaries similar to those that already exist for comparable asset classes”.

Horejsi also voiced optimism about the rapid implementation of these new guidelines, citing Europe's example with the Markets in Crypto-Assets Regulation (MiCA). He said, "I believe that other economic blocks will follow suit shortly”.