The Financial Stability Board (FSB) said it would propose “robust” global rules for cryptocurrencies in October, following recent turmoil in markets that has highlighted the need to regulate the “speculative” sector.
The FSB, a body of regulators, treasury officials and central bankers from the Group of 20 economies (G20), has so far limited itself to monitoring the crypto sector, saying it did not pose a systemic risk.
But recent turmoil in crypto markets has highlighted their volatility, structural vulnerabilities and increasing links to the wider financial system, the FSB said.
“The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem,” the FSB said in a statement.
The value of bitcoin, the largest cryptocurrency, has slumped some 70 percent since its November record of $69,000 and was trading at $20,422 last week, leaving many investors nursing losses.
TerraUSD stablecoin collapsed earlier this year, and withdrawals and transfers from major crypto firms Celsius Network and Voyager Digital have rattled markets.
Stablecoins should be captured by robust regulation if they are to be used as a means of payment, the FSB said.
“The FSB will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets,” the FSB said.
The FSB has no lawmaking powers but its members commit to applying its regulatory principles in their own jurisdictions.
The watchdog is lagging the European Union, a leading member of the FSB, which agreed comprehensive new rules for the crypto market this month.
Cryptocurrency companies will need a licence and customer safeguards to issue and sell digital tokens in the European Union under groundbreaking new rules agreed by the bloc to tame a volatile “Wild West” market.
The landmark regulation confirms the EU’s role as a standard-setter for digital issues, EU states said.
“Crypto-asset service providers will have to respect strong requirements to protect consumers’ wallets and become liable in case they lose investors’ crypto-assets,” they added.
The new law will need formal rubberstamping by the European Parliament and EU states to become law, followed by an implementation period.
It gives issuers of crypto assets and providers of related services a “passport” to serve clients across the EU from a single base.
Holders of stablecoins – a type of crypto designed to hold a steady value – will be offered a claim at any time and free of charge by the issuer, with all stablecoins supervised by the bloc’s banking watchdog.
Globally, crypto assets are largely unregulated, with national operators in the EU only required to show controls for combating money laundering.
The FSB said cryptoassets are predominantly used for “speculative purposes” but don’t operate in a “regulation free space” and must comply with relevant existing rules.
Many countries require crypto firms to have anti-money laundering controls.
“FSB members are committed to using the enforcement powers within the legal framework in their jurisdiction to promote compliance and act against violations,” the FSB said. –Reuters
