THE Financial Stability Board (FSB), an organization founded in the wake of the global financial crisis, has made a series of recommendations on the rules relating to cryptocurrencies in 2023, in an attempt to align them with the traditional financial sector.
In its report on Thursday, it said that while some progress had been made, international implementation and coordination of the rules remained too “fragmented, inconsistent and insufficient to respond to the global nature of crypto-asset markets.”
Risks to financial stability remain “limited at present,” but are now increasing with the rise of bitcoin and other cryptocurrencies that has doubled the value of the global crypto market to $4 trillion over the past year.
“This has consequences,” FSB Secretary General John Schindler told Reuters, describing concerns raised during the review. “These crypto assets can cross borders very easily, much more easily than other financial assets.”
Lack of Stablecoin rules
The rise in crypto market value this year occurred against the backdrop of US President Donald Trump’s pro-crypto stance.
Schindler said close monitoring is needed as crypto becomes more connected to the traditional financial system and stablecoins — cryptocurrencies mostly pegged to the dollar — become more widely used.
One of the main concerns flagged by the FSB report was that virtually no countries yet have comprehensive regulatory frameworks for stablecoins.
While still small compared to cryptocurrency markets dominated by bitcoin, the stablecoin market has grown by nearly three-quarters over the past year to just under $290 billion, a trajectory that is expected to continue with U.S. rules now in effect.
The FSB report examined 29 jurisdictions’ implementation of the crypto and stablecoin recommendations, including the US, EU, Hong Kong and the UK, although the US only participated in the stablecoin aspect. El Salvador, where the world’s largest stablecoin Tether is based, however, did not participate.
Schindler said the latest review was worth it even without El Salvador’s input, given that the FSB was already aware of the risks, but stressed the need for better global cooperation and coordination from all jurisdictions in the future.
“We can all put frameworks in place, but if there are people who aren’t cooperating and helping each other, it’s going to be really difficult because these things don’t respect boundaries,” he said.
“Limited for the moment” but growing risks
Global policymakers shaken by collapse of crypto exchanges FTX and the disappearance of TerraUSD/Moon parts in 2022.
There has also been a lot of nervousness over the past week, with the biggest cryptocurrency crash in history on Friday triggering nearly $20 billion in market liquidations.
The FSB report presents a list of eight recommendations for jurisdictions to accelerate the implementation of comprehensive and globally consistent rules and improve cross-border cooperation and coordination.
They follow similar concerns raised by the European UnionThe securities watchdog said in April that even small markets can cause larger problems in the financial system.
Even if countries have their own regulatory regime, they can still be affected by the activities of offshore-headquartered crypto companies, Schindler said.
