Crypto companies should set aside capital like banks while carrying out similar activities, regulators proposed Tuesday in their first global regulations as a “crypto winter” to wipe out $2 trillion from the sector, leading to Investors suffered.
The Financial Stability Board (FSB), which coordinates financial rule-making among the Group of 20 economies (G20), made nine recommendations for members to apply.
Currently, the sector is largely unregulated in most countries, only to comply with regulations on protection against money laundering and terrorist financing, as regulators warn investors that they run the risk of losing every penny.
The chairman of the Dutch central bank that presides over the FSB, Klas Nott, said the recent sharp decline in the “crypto winter”, or cryptocurrency, strengthened the board’s assessment of existing structural weaknesses.
The FSB has said that crypto, which has a combined value of $935 billion versus $3 trillion at its peak in November last year, is not enough to threaten financial stability, but rules are needed to regulate a potential recovery. Was.
“Concerns about the risks they pose to financial stability are likely to emerge sooner rather than later,” Knott said in a letter to the G20 finance ministers meeting in Washington this week.
The FSB recommends creating a framework for monitoring, managing and managing risk and data on cryptocurrency firms, and plans to ease closure of cryptocurrency firms.
“Many crypto-asset lenders failed during the recent market turmoil, resulting in run-of-the-mill vulnerabilities, thin capitalization, concentrated exposure to riskier entities, and riskier trading and business ventures,” the FSB said.
The proposal seeks cross-border stability to regulate crypto-assets, especially as the EU finalizes important rules to regulate the sector from 2024.
The underlying principle is that the same activity should be regulated in the same way, whether carried out by a cryptoasset company, bank or payment provider, and crypto firms may need to separate certain functions to ensure that, FSB said.
The proposals have been put up for public consultation until 15 December before being finalized by mid-2023, when FSB members will be expected to fast-track their implementation.
The FSB also reviewed its guidance on regulating stablecoins, a type of cryptocurrency typically backed by a currency such as the dollar or asset.
The FSB said the May crash of the dollar-backed Terra stablecoin highlighted the high risk of losses and potential fragility of stablecoins that lacked a stabilization mechanism.
The watchdog said that most of the existing stablecoins do not meet its guidance and it has proposed amendments to the guidance that include strengthening the governance and stabilization mechanisms of stablecoins and clarifying and strengthening redemption rights.