The Financial Stability Board (FSB) today announced it will come up with its own proposal for rules ensuring “robust regulation and supervision” of cryptocurrencies.
The organization, which includes treasury officials and central bankers from the Group of 20 economies (G20), said it will report to the G20 finance ministers and central bank governors in October, outlining its regulatory and supervisory approaches to stablecoins and other crypto assets.
“Crypto-assets, including so-called stablecoins, are fast-evolving. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system,” the FSB said in a statement.
The organization added that even the failure of one single market player can result not only in “imposing potentially large losses on investors and threatening market confidence,” but can also “quickly transmit risks to other parts of the crypto-asset ecosystem.”
Today’s announcement comes in the wake of the dramatic collapse of the Terra ecosystem in May and the ensuing liquidity crisis—and, eventually, bankruptcy—faced by several high-profile crypto lending firms and hedge funds.
Notably, this is also the first time when the FSB would propose specific rules for the crypto space—although the organization has been closely monitoring the industry, it has so far refrained from any action.
Crypto community reacts to G20 proposal
The news of incoming regulations was met with a mixed response from the crypto community.
“Regulations in the crypto world have always met skepticism because they are at odds with the fundamental principles of crypto being free and decentralized,” Pedro Herrera, a senior blockchain analyst at DappRadar told Decrypt.
According to Herrera, while some people may see imposing clear rules as “a stepping stone to mass acceptance and adoption,” for many crypto hardliners, “regulations are how creativity gets stifled and freedom curtailed.”
“It should be noted that while regulations do not guarantee a market free from fraud, they do create a barrier for many bad actors to exploit the space,” he said while adding that, however, it's too early to jump to conclusions since no concrete proposals have been made thus far by the G20.
Kene Ezeji-Okoye, the co-founder of Millicent, the first stablecoin and CBDC project to be funded by the UK government's Research and Innovation Department, agreed that more detail of the FSB’s upcoming proposal is needed.
“While some form of regulation will undoubtedly make the space safer and allow more ‘everyday’ adoption, over-regulation could easily cripple the industry, so seeing the FSB calling for 'robust' global rules—without any idea of what those regulations might be—is slightly concerning,” Ezeji-Okoye told Decrypt.
According to him, “the problem with trying to write an all-encompassing rulebook for crypto is that by the time the book is published, the game will have significantly changed.”
Still, Ezeji-Okoye admits that the events of the past few months have clearly demonstrated that stablecoins are “one area where comprehensive regulation is needed.”
“For digital currencies to go mainstream, stablecoins must be trusted by the public, and fully fungible with other types of public and private money. The only realistic way for that to happen is via a shared regulatory framework,” the Millicent boss added.
Joseph Collement, legal counsel at Bitcoin.com, is meanwhile far from confident that the FSB rules will have any positive impact on the industry.
“Regulators are aware since 2018 that companies like Celsius are pseudo-banks without FDIC insurance. Yet, they failed to protect consumers. FSB rules are coming too late and will likely be unhelpful to the industry as a whole,” Collement told Decrypt.
Some players, however, see positives in the FSB’s move.
“It’s heartening to see more and more policymakers and regulators recognize that crypto is here to stay,” Igneus Terrenus, head of communications at crypto exchange ByBit, told Decrypt. “This emergent consensus will ensure the healthy development of the fast-growing and fast-changing industry for decades to come.”
Terrenus added that ByBit would be happy to contribute its knowledge and resources to such endeavors.