The Financial Stability Board (FSB) has called for tougher rules on safeguarding crypto clients’ assets and avoiding conflicts of interest, after multiple allegations of bad behavior emerged during crypto’s recent turbulent year. The FSB, which groups regulators from some two-dozen jurisdictions, published recommendations to ensure consistent and comprehensive regulation of the sector. The recommendations are focused on preventing the kind of behavior alleged to have been carried out by companies such as FTX and Celsius.
The events of the past year have highlighted the intrinsic volatility and structural vulnerabilities of crypto-assets and related players, said the document, unveiling new norms which could see major crypto conglomerates forced to separate some of their activities and functions. The FSB also referred to the recent collapse of crypto-focused banks, the brief de-pegging of Circle’s USDC stablecoin two months ago, and the sudden downfall of the terraUSD stablecoin in May 2022 that heralded a new crypto winter.
The FSB’s recommendations are flexible enough to allow both the European Union’s Markets in Crypto Assets (MiCA) regulation and the U.S. Securities and Exchange Commission’s (SEC) existing hundred-year-old rules originally designed for traditional financial instruments. “This global framework does not rewrite or create a completely new regulatory rulebook for crypto assets, FSB Secretary General John Schindler said. Crypto asset activities are not as different from traditional financial activities as some would have us believe, and similar rules should apply.
“While jurisdictions work to implement these standards, we would encourage all crypto-asset players to start to comply with these basic expectations and standards now, he added.