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G20 Regulator's Crypto Rules to Avoid "Too Big to Fail" Scenario

The recommendations focus on strong governance to avoid conflicts of interest and proper risk management and disclosures to keep customer money separate from company cash to avoid an FTX-style crash.

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The Group of 20 top nations' Financial Stability Board (FSB) said crypto businesses must implement basic safety measures as part of the global regulatory framework to avoid future incidents like the one at the FTX exchange.

On Monday, the FSB published final suggestions for the G20 Board's guidance on regulating exchanges for digital currencies like Bitcoin and avoiding the collapse of stablecoins like TerraUSD/Luna currencies; the watchdog also updated its previous recommendations for stablecoins.

Before the digital assets sector gets big enough to threaten financial stability, both the recommendations by the FSB used basic safety measures from mainstream finance.

"The FSB is finalising its global regulatory framework for crypto-asset activities to promote the comprehensiveness and international consistency of regulatory and supervisory approaches," said the FSB.

The FSB added that recent developments have shown that increasing crypto asset market spillovers into the larger financial system is possible if ties to conventional finance are strengthened.

Following the failure of FTX in November 2022, the FSB issued suggestions for all nations to implement, regardless of membership in the organisation.

FTX was founded in the Bahamas, which is not a member of the FSB.

The FSB's Global Regulatory Framework for Crypto-Asset Activities is based on the principle of "same activity, same risk, same regulation."

It provides a solid foundation for ensuring that crypto-asset activities and so-called stablecoins are subject to consistent and comprehensive regulation commensurate with their risks.

The guard rails also supports responsible innovations that the technological shift may bring about.

The recommendations of the G20 watchdog are made up of two sets:

The proposals target threats to financial stability but do not address every possible kind of danger posed by crypto-asset transactions, with the events of the last year in the crypto-asset markets and the responses to the FSB's suggestions being considered.

This paper explains how the two sets of suggestions combine to provide a structure for the worldwide regulation, monitoring, and oversight of stablecoin arrangements and other crypto-asset pursuits.

But the guidelines do not apply to Central Bank Digital Currencies (CBDCs), envisioned as digitalised central bank liabilities.

That comes on the heels of news that central Banks are scrambling to roll out CBDCs, with 93% of the 86 central banks engaged in work related to CBDCs, according to a BIS survey.

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Additional steps from the global banking and securities watchdogs Basel Committee of the BIS and IOSCO (International Organization of Securities Commissions) are expected to make the FSB requirements more detailed.

Although the European Union has already established the first worldwide set of regulations for crypto assets markets, the FSB's "global baseline" minimum criteria are flexible enough to allow states that wish to go farther.

Europe’s Rules for Crypto World vs IMF’s Plan
Following the failure of many major firms, notably the crypto exchange FTX, the EU approved Markets in Cryptoassets (MiCA) legislation.

IOSCO suggested the first worldwide method to regulate the cryptocurrency market's day-to-day activities in May.

Crypto Rules Coming Thick & Fast; Global Watchdog Announces Strategy
Using lessons learned from the FTX exchange’s collapse last year, which sparked worries over consumer protection, the International Organisation for Securities Commissions (IOSCO) revealed on Tuesday the first worldwide strategy for regulating crypto assets and digital markets.

By the end of 2025, the FSB, whose members pledge to adopt agreed rules, will have reviewed their implementation.