G20 Body Presents 9 Regulatory Recommendations to Strengthen the Crypto Industry

Last year’s cryptocurrency market crashes have prompted the G20 to propose stricter global regulations for the industry. The Financial Stability Board (FSB), in its recently published global regulatory framework for crypto-asset activities, acknowledged the impact of these crashes and aimed to address the wider financial risks associated with unregulated crypto firms, such as FTX and Terra.

Regulatory Recommendations for the Crypto Industry

The FSB has put forth nine key recommendations for regulators to supervise crypto companies and markets. These recommendations have been revised based on feedback received during the FSB’s public consultation on the topic. Some of the main recommendations include:

• Enhancing cross-border cooperation between regulators
• Implementing governance requirements for crypto issuers
• Mandating disclosure standards for the crypto industry
• Ensuring adequate safeguarding of client assets
• Addressing conflicts of interest

The FSB’s strengthened recommendations reflect the inherent volatility and structural vulnerabilities of crypto-assets and related entities. It also recognizes the potential for spillover effects from crypto market crises to the traditional financial system as the two sectors become more interconnected.

The Principle of “Same Activity, Same Risk, Same Regulation”

The FSB’s regulatory framework is built on the principle of “same activity, same risk, same regulation.” This principle aims to create a level regulatory playing field by subjecting different forms of the same activity, such as payments, to the same rules. The goal is to protect stakeholders and maintain financial stability without conferring legitimacy on the crypto industry through regulation.

Monsur Hussain, head of financial institutions research at Fitch Ratings, commented, “The FSB has taken the view that crypto markets require further regulation to protect stakeholders and financial stability.”

Positive Reception and Implementation Challenges

Industry experts have welcomed the FSB’s regulatory recommendations. Konstantin Horejsi, chief product officer at Blocktrade, expressed that the crypto community has never sought special treatment but rather the establishment of boundaries similar to those for other asset classes.

However, the success of the FSB’s recommendations will depend on their implementation. Horejsi emphasized that regulators’ varied approaches to implementation could affect the effectiveness of the guidelines. Nevertheless, he believes that the foundation blocks are now in place, and regulators will likely respond more quickly to the challenges ahead.

Additionally, Horejsi noted that while Europe has set an example with its Markets in Crypto-assets (MiCA) regulations, other economic blocs are expected to follow suit soon.

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