FSB advices on crypto regulations that protect innovations

The Financial Stability Board (FSB) – the international body that monitors and makes recommendations about the global financial system – has released a crypto regulation framework calling for the enactment of laws that equate to the risks posed by the sector.

In particular, the FSB advised that crypto regulations should be comprehensive and uniform across all jurisdictions but aim to protect innovations in the sector, the agency said in the framework published on October 11.

At the same time, the FSB acknowledged that the laws should focus on building the sector’s technology while borrowing a leaf from the traditional financial industry.

“An effective regulatory framework must ensure that crypto-asset activities are subject to comprehensive regulation, commensurate to the risks they pose, while harnessing potential benefits of the technology behind them. Such regulation should ensure equivalent regulatory outcomes where they pose risks similar to those posed by traditional financial activities, while addressing novel features of crypto-assets,” the FSB said.

Stablecoin regulations

Elsewhere, the agency recommends regulating stablecoins, especially after the collapse of the Terra (LUNA) ecosystem crash. The framework notes that policymakers should fully ensure stablecoinS issuers back their assets to prevent failure.

“Reliance on algorithms and arbitrage activities are not effective stabilization mechanisms. Indeed, as the report describes, many existing stablecoins, including Terra/Luna, would not meet the FSB’s high-level recommendations,” FSB added.

Following the framework’s release, members of the public have an option to share their views by December 15, with FSB noting that the aim is to attain consistency in regulations.

Increased pressure to regulate crypto

Notably, the FSB has accelerated its calls for global crypto regulations by urging different jurisdictions to collaborate on a working framework. The calls have come amid the widespread 2022 crypto market correction.

As reported by Finbold, the FSB noted that the need for regulation is due to the unreliability of digital assets. According to the body, cryptocurrencies are an ‘unreliable store of value’ hence the need for ‘robust regulation.’

It is worth noting that different jurisdictions are unveiling drafts to regulate the sector led by the United States and the European Union. Recently, the EU passed the Markets in Crypto-Assets (MiCA) laws for managing the crypto space.