• The Financial Stability Board (FSB) has announced plans to finalize its recommendations for regulating crypto and stablecoins by July this year.
• Many existing stablecoins would fail to meet international standards set by payments or securities standard setters, according to the FSB Chair Klaas Knot.
• The FSB is collaborating with other standard-setting bodies to determine how decentralized finance (DeFi) should be regulated.
FSB Plans Finalizing Recommendations for Crypto Regulation by July
The Financial Stability Board (FSB), a financial regulator funded by the Bank for International Settlements (BIS), plans to finalize its recommendations for regulating crypto and stablecoins by July this year. In a letter to G20 finance ministers and central bank governors, FSB Chair Klaas Knot stated that the upcoming guidance of the Board will focus on strengthening stablecoin governance frameworks, redemption rights, and stabilization mechanisms.
Many Existing Stablecoins Would Fail to Meet Standards Set by Payments and Securities Standard Setters
Knot added in his letter that many existing stablecoins would also fail to meet international standards set by payments or securities standard setters. Regulators around the world have taken steps to oversee payments-focused stablecoins, which are mostly backed by fiat currency reserves. Despite efforts of those issuing stablecoins made in order to reduce private debt and improve transparency, Knot’s note suggests that these measures may not be sufficient.
Increased Efforts of Oversight Following Numerous Company Failures Last Year
Following numerous company failures last year such as those of blockchain protocol Terra and crypto exchange FTX, regulators around the world have increased efforts in overseeing the sector. In February last year, the FSB warned that crypto risks to financial stability could rapidly escalate.
FSB Collaborating with Other Standard-Setting Bodies on DeFi Regulation
The FSB announced recently that it will work with other standard-setting bodies in order to determine how decentralized finance (DeFi) should be regulated. A report was released on the financial stability risks of DeFi which highlighted its vulnerabilities and transmission channels as well as noting that actual degree of decentralization in DeFi systems often deviates significantly from what is stated by founders.
Conclusion
The FSB is taking major steps towards regulating cryptocurrencies and digital assets through collaboration with other regulatory bodies while also providing insight into potential risks associated with decentralized finance systems such as those encountered during company failures last year. Its recommended guidelines are expected soon which may give much needed clarity into how these assets can be safely used while protecting consumer interests at large scale worldwide
