Crypto assets: G20 sets out global rules

The Financial Stability Board's global regulatory framework receives mixed reactions from industry players

Published: Jul 18, 2023 02:43:02 PM IST

Updated: Apr 10, 2024 06:40:59 PM IST

The FSB's recent announcement comes in response to the increasing impact of cryptocurrencies on the global economy. Image: Shutterstock

On July 17, the Financial Stability Board (FSB) published the final recommendations requested by the Group of 20 (G20) nations on supervising firms that trade crypto assets such as bitcoin. During their meeting in Gandhinagar, Gujarat, the FSB also revised its existing recommendations for stablecoins in light of the demise of TerraUSD and Luna coins.

The G20's FSB monitors and makes recommendations on the global financial system. Under the global rules it announced, cryptocurrency firms will have to introduce basic safeguards to prevent events such as the collapse of FTX Exchange.

The FSB's recent announcement comes in response to the increasing impact of cryptocurrencies on the global economy. However, according to experts, these recommendations are vague, don’t keep in mind the fundamentals of the crypto ecosystem, and miss major concerns around cybersecurity, anti-money laundering, and counter-terrorism financing.

“The events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto assets and related players. They have also highlighted how the failure of a key service provider in the crypto asset ecosystem can quickly transmit risks to other parts of that ecosystem. If linkages to traditional finance were to grow further, spillovers from crypto asset markets into the broader financial system could increase,” the FSB said.

The collapse of FTX in November 2022 underlined vulnerabilities in crypto firms and, according to the FSB, all countries should apply the recommendations, even those that are not members of the watchdog. FTX was based in the Bahamas and was not an FSB member.

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The FSB has made high-level recommendations to promote a consistent regulatory framework that includes essential activities and the interconnectedness of crypto asset markets, applicable international standards, and regulatory and supervisory approaches to crypto asset activities. Overall, it has focussed on three areas: Ensuring adequate safeguarding of client assets, addressing risks associated with conflicts of interest, and strengthening cross-border cooperation.

“I’m not very happy with these recommendations. They have basically shown the point of view of only one side, which is the government, and they have ignored how the crypto ecosystem functions under decentralisation. Power belongs to the users, to the consumers, to the citizens, and not to the governments. But with these recommendations, it seems they want to gain power again, but I don't think they will be successful because it's too big now to be controlled by any country or a group of countries,” says Sidharth Sogani, founder and CEO of Crebaco Global, a crypto and blockchain market research and ratings firm.

Bitcoin has now reached a stage of satisfactory network decentralisation. It is now so decentralised that it cannot be controlled by even the G20 countries together, explains Sogani. This is what it was designed for, and it is doing it very well. “The government must respect the decentralised ecosystem and embrace it because they can't stop it now. Hence, the regulations that are being made are only for the centralised players, like users and exchanges. It says nothing about regulating Bitcoin because it's been regulated by its own protocol from day one,” he adds.

On the other hand, Rajagopal Menon, vice president of crypto exchange WazirX, welcomes the FSB's finalised global regulatory framework for crypto asset activities. “We are encouraged by the FSB’s focus on addressing risks to financial stability and its acknowledgment of the lessons learned from the recent events in crypto asset markets. The FSB’s high-level recommendations for the regulation, supervision, and oversight of crypto asset activities and markets, as well as global stablecoin arrangements, align with our own commitment to transparency, risk management, and robust governance,” he says.

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Ashish Singhal, co-founder and CEO of CoinSwitch, says the FSB’s global regulatory framework for crypto asset activities presented to the G20 this week is an important milestone towards the development of a comprehensive and coherent global regulatory framework that supports responsible innovation. As per its mandate, recommendations from the FSB report focus on just financial stability.

“We look forward to the recommendations from other bodies within the G20 for their inputs around areas such as investor protection, cybersecurity, anti-money laundering, and counter-terrorism financing (AML/CFT). The IMF-FSB synthesis paper, which will support a coordinated and comprehensive policy approach to crypto assets in September, will be another major development,” says Singhal.

While there is an increased focus on a coordinated policy response, many countries and jurisdictions have taken an early and decisive lead in offering regulatory clarity on crypto assets. “We are working towards establishing mutual agreement on key policy solutions among regulators, lawmakers, and industry peers so that the Web3 and VDA digital asset economies can flourish in India,” concludes Singhal.