Financial Stability Board Issues Recommendations for Regulating Cryptoasset Activities and Markets08/14/2023
The Financial Stability Board has finalized its global regulatory framework for cryptoasset activities and markets and revised the framework for global stablecoin arrangements. Both frameworks, based on the principle of "same activity, same risk, same regulation" aim to provide a basis for consistent regulation across the globe that is proportionate to the risks.
Comprising nine high-level recommendations for the regulation, supervision and oversight of cryptoasset activities and markets, the cryptoasset framework sets out the key objectives for implementation of an effective regulatory and supervisory regime for mitigating the risks posed by cryptoassets. The recommendations are:
Recommendation 1: Authorities should have and use appropriate powers and tools, and adequate resources to regulate, supervise, and oversee crypto-asset activities and markets, and enforce relevant laws and regulations effectively.
Recommendation 2: Authorities should apply comprehensive and effective regulation, supervision, and oversight to crypto-asset activities and markets, including crypto-asset issuers and service providers, that are consistent with international standards and proportionate to the financial stability risk they pose, or potentially pose, in line with the principle "same activity, same risk, same regulation".
Recommendation 3: Authorities should cooperate and coordinate with each other, both domestically and internationally, to promote efficient and effective communication, information sharing and consultation.
Recommendation 4: Authorities should require that crypto-asset issuers and service providers have and disclose a comprehensive governance framework with clear and direct lines of responsibility and accountability for all functions and activities they are conducting.
Recommendation 5: Authorities should require crypto-asset service providers to have an effective risk management framework that comprehensively addresses all material risks associated with their activities.
Recommendation 6: Authorities should require that crypto-asset issuers and service providers have robust frameworks, including systems and processes, for collecting, storing, safeguarding, and the timely and accurate reporting of data, including relevant policies and procedures.
Recommendation 7: Authorities should require crypto-asset issuers and service providers to disclose to users and relevant stakeholders comprehensive, clear and transparent information regarding their governance framework, operations, risk profiles and financial conditions, as well as the products they provide and activities they conduct.
Recommendation 8: Authorities should identify and monitor the relevant interconnections, both within the crypto-asset ecosystem, as well as between the crypto-asset ecosystem and the wider financial system, and address the financial stability risks that arise.
Recommendation 9: Authorities should ensure that crypto-asset service providers and their affiliates that combine multiple functions and activities, where permissible, are subject to appropriate regulation, supervision and oversight that comprehensively address the risks associated with individual functions and the risks arising from the combination of functions, including but not limited to requirements regarding conflicts of interest and separation of certain functions, activities, or incorporation.
The original 10 high-level recommendations for GSC arrangements have been amended and one of the key changes is to enhance customer protection by recommending that GSC arrangements:
- Must provide a robust legal claim to all users against the issuer and/or underlying reserve assets.
- Referencing a single fiat currency, should be redeemed at par into fiat.
- Must have an effective stabilization mechanism and meet prudential requirements.
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