The Financial Stability Board (FSB), an international advisory body created by the G20, has laid out its recommendations for crypto regulation, and said most existing stablecoins are not in compliance.
FSB’s recommendations for crypto and stablecoin regulation were first endorsed by the G20 – a group consisting of the world’s 20 largest economies – two years ago, with updated recommendations published on Tuesday this week along with a request for public feedback.
Perhaps most importantly, the recommendations clearly showed that the FSB is concerned about custodial wallet providers and exchanges, and to what extent they should be held liable for things like the loss of private keys.
The loss of keys by a wallet provider supporting a stablecoin could ultimately bring the safety of the specific stablecoin into question, the document containing the recommendations explained. For instance, actions taken by the crypto exchange Binance could have an impact on how users view the stablecoin Binance USD (BUSD), while Bitfinex and Tether (USDT) are also seen as having close ties to each other.
The recommendations from the FSB comes after the organization in July urged governments to step up their supervision of stablecoins, citing recent turmoil in the crypto sector as a risk factor.
Among the key recommendations laid out in the updated 77-page report this time were:
- Give governments the powers they need to effectively oversee crypto markets
- Authorities should coordinate on crypto regulations and enforcement both domestically and internationally
- Governance and risk management frameworks need to be developed for all crypto-asset service providers
- Crypto-asset service providers need to appropriately disclose risks associated with their services
- Any interlinking between crypto markets and traditional financial markets (“TradFi”) need to be identified and monitored to reduce risks to traditional markets
Summarizing its recommendations, the FSB said it aims to “promote consistent and effective regulation, supervision and oversight” of what it calls global stablecoins (GSCs). It noted that this should happen across jurisdictions, while still “supporting responsible innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches.”
The document added that their recommendations are intentionally designed to be “flexible”:
“The recommendations are intended to be flexible so that they can be incorporated into the wide variety of regulatory frameworks potentially applicable to GSCs around the world.”
The FSB noted that it aims to finalize its updated recommendations to reflect public comments by July 2023. Feedback can be submitted to the organization by the public until December 15 this year.