FSB finalizes its recommendations for a global crypto framework

The Financial Stability Board states that crypto platforms must segregate clients’ digital assets from their own funds and clearly separate functions to avoid conflict of interest.

The Financial Stability Board (FSB) — an international organization that monitors the global financial system — has come up with a global regulatory framework for crypto. The guidelines recommended to the 20 leading economies of the world, known as the G20, are crafted upon the principle of “same activity, same risk, same regulation.”

A public note and two separate guideline documents were made public on July 17. The document consists of two sets of recommendations: high-level recommendations for regulating crypto in general and “revised high-level recommendations” for a “global stablecoin.” The latter means nothing more than any stablecoin that could be used more than in one jurisdiction.

The FSB states that crypto platforms must segregate clients’ digital assets from their own funds and clearly separate their multiple functions to avoid conflict of interest, whereas the regulators must ensure tight cross-border cooperation not to let the platforms evade oversight.

The Board is also quite open about its appreciation of privacy, as it demands local regulators make sure that there is no activity that “may frustrate the identification of the responsible entity or affiliated entities,” pointing to the decentralized finance (DeFi) protocols. As the high-level recommendation number 6 goes:

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

As for so-called global stablecoins, among standard demands, the FSB emphasizes that any stablecoin issuer should have one or more identifiable and responsible legal entities or individuals — a “governance body.” And, of course, to hold reserve assets in 1:1 minimal proportion, unless the issuer “is subject to adequate prudential requirements”, equivalent to commercial bank standards. 

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What is new, though, is the potential obligation of “global stablecoin” issuers to obtain some kind of permit to operate in each separate jurisdiction. In the guidelines words:

“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.”

The FSB is going to review the state of the implementation of its recommendations worldwide by the end of 2025. In September 2023, together with the International Monetary Fund (IMF), it will deliver a joint report on the existing policies and regulatory issues to the G20. 

At the beginning of July, the Association for Financial Markets in Europe (AFME) cited the FSB stance, urging the European Union lawmakers to include the category of DeFi into the first pan-EU crypto framework.

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