To prevent another FTX-like blowup, the Financial Stability Board (FSB) is preparing a global framework for crypto companies to be regulated like banks.
Its worldwide policy recommendations are expected to be laid out by early 2023, and enacted soon after.
Responding to FTX
As FSB secretary general Dietrich Domanski told the Financial Times, The board is already in “strong agreement” about the way forward for industry regulation. The goal, he said, is to have crypto service providers “held to the same standards as banks . . . if they provide the same service that banks provide.”
The secretary-general added that additional work is needed for addressing how to safeguard client assets. Furthermore, there must be rules pertaining to firms engaged in activities that are “traditionally separate.” In the past, the Securities and Exchange Commission has criticized
With such rules in place, Domansaki believes regulators could prevent future catastrophes like those at Terraform Labs and FTX this year. The former saw its two child cryptocurrencies, LUNA and UST, plummet to zero in May due to design flaws. Meanwhile, FTX fell apart after allegedly misappropriating client funds for trading at Alameda Research, and losing them in the process.
“One objective of this work plan is precisely to counter a perception that all this (work on cryptocurrency) is disperse and slow and is not focused on a single common goal,” said Domanski.
Kickstarting Crypto Regulation
Regulators – especially in the United States – have been caught between competing factions of crypto boosters and skeptics, respectively calling for both light and heavy-handed industry controls. While the former believes crypto must be allowed to flourish within the region, the latter sees potential innovation within the sector as overshadowed by its overabundance of hacks and scams.
“Many crypto market participants argue that authorities are hostile to innovation. I would say so far, authorities have been fairly accommodating . . . recent events have reinforced the recognition that it is indeed urgent to address risks,” Domanski continued.
Regardless of where the cards fall, most parties agree that regulations need to be clear, unified, and fast. Nevertheless, Domanski defended the FSB’s patience in creating a framework until now, stating that the market’s evolution was still unclear until recently.
Europe has already agreed to a regional framework on regulating crypto, but it will not take effect until 2024. While global rules typically take longer to implement, Domanski doesn’t expect too long a wait on the FSB’s framework.
“I don’t think that we would be talking about a decade. I mean, that would be way too long. I think the work plan will reflect the urgency,” he said.
