The Financial Stability Board (FSB), a global financial regulator including all G20 countries, will release recommendations to regulate stablecoins and cryptocurrencies in October, according to a statement on July 11.
The collapse of the Terra ecosystem in May and the crypto market crash in June, which has triggered insolvency risks for multiple crypto lenders, have prompted governments to increase crypto regulations.
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The watchdog is planning to report to the G20 finance minister and central bank governors in October 2022 on regulatory and supervisory approaches to stablecoins and other crypto assets. By that time, the FSB targets a public consultation report on the review of recommendations, including “how existing frameworks may be extended to close gaps and implement the high-level recommendations.”
The G20 authority also plans to submit another public consultation report that proposes recommendations for promoting global consistency of regulatory and supervisory approaches to other crypto-assets.
“These combined efforts of the FSB and the international standard setting bodies are aimed at minimizing the risk of fragmentation and regulatory arbitrage,” the FSB noted.
According to the statement, the FSB’s growing interest in crypto regulations came due to the recent decline in cryptocurrency markets. The market turmoil has highlighted the issue of crypto’s “increasing interconnectedness with the traditional financial system,” the regulator said.
“It may have spill-over effects on important parts of traditional finance such as short-term funding markets,” the FSB stated, adding that global regulators need to supervise crypto markets in line with the principle of “same activity, same risk, same regulation.
As such, a stablecoin that enters the mainstream of the financial system needs to comply with “high regulatory and transparency standards, maintain at all times the reserves that preserve stability of value and meet relevant international standards,” the FSB stated.
The FSB’s plan to propose recommendations for global unified stablecoin regulation is quite a challenging task, according to some industry executives.
Narek Gevorgyan, CEO at crypto data provider CoinStats, pointed out that the FSB has no lawmaking powers but promises to fit crypto assets into existing legal frameworks of participating member countries. Gevorgyan questioned the regulator’s ability to embrace all regulatory approaches and protocols, stating:
“Existing legal frameworks can help regulate the speculative aspects of the market and centralized exchanges, but how does the FSB plan to integrate the hundreds of existing and newly emerging protocols that are radically resistant to regulation by design?”