FSB encourages fast rollout of global crypto standards

While the European Union and others have created regional rules, global policymakers have been criticised for facilitating a regulatory vacuum that enabled companies like FTX to straddle borders and achieve massive scale with scant oversight before their multibillion-dollar combustion.

In coming months the FSB intends to set out a timeline for global regulators to implement its first recommendations on global crypto regulation, as well as detailing areas where policymakers could benefit from more clarity before making rules, following issues exposed by recent failures like FTX and cryptocurrency operator Terraform Labs, whose terraUSD stablecoin collapsed overnight. Global rules agreed at the FSB are then put into law by national politicians and regulators.

One objective of this work plan is to counter a perception that all this (work on cryptocurrency) is disperse and slow and is not focused on a single common goal, as representatives see it. The objective is to create a regime where crypto service providers would be held to the same standards as banks, if they provide the same services. Such rules could prevent calamities like FTX and Terraform since neither would have met the criteria for sound governance that the rules would demand.

Europe’s crypto rules, agreed in July 2022, will not come into effect until 2024. Global rules typically need a longer lead-in. FSB expects the project to take less then a decade, the work plan reflecting the urgency.

FSB’s objectives and policy

The areas for additional work following a spate of crypto collapses include how to deal with firms where there is a combination of different activities that are traditionally separate, the need to clarify governance arrangements and ensure transparency and how to safeguard client funds to avoid a destabilising run on a cryptocurrency.

The Basel bank capital rules have been the FSB’s most impactful global policy work, forcing banks to raise tens of billions and implement far tighter risk management frameworks in the aftermath of the 2007-08 crash.

That work was steered by a dedicated committee, known as the Basel Committee for Banking Supervision. Crypto was a key priority at FSB meetings, alongside climate and non-bank financial regulation. FSB representatives consider that it is necessary to understand the crypto markets better before setting rules.