By George Ward
In the aftermath of the FTX saga, the FSB (Financial Stability Board) has advocated for the establishment of a common crypto regulatory framework globally. This framework would supervise, regulate, and evaluate the risks associated with DeFi (decentralized financial) systems.
At the last FSB conference held in Basel, the board revealed its plans to upgrade the regulatory framework for cryptocurrencies. The aim is to ensure the framework captures the DeFi sector and its impact on the traditional finance markets.
Despite the ripple effect of the FTX collapse, the FSB noted that the risk the crypto sector posed to financial stability was “limited.” However, the agency said the collaboration between the crypto sector and critical financial institutions and markets has grown. Hence, the possibility of such risks has increased as well.
“Crypto platforms combining several activities separated in the financial sector have huge risks. Also, it could lead to conflicts of interest and misunderstanding of users’ funds,” the FSB stated.
As a result, the FSB believes policymakers should work quickly to advance laws on crypto regulation. Furthermore, the board noted that there must be a global regulatory and supervisory framework for FSB and non-FSB states.
The recent news comes after the agency solicited public opinion on its proposed regulatory framework. On October 11th, the financial board opened a public opinion poll.
The purpose was to receive feedback on its suggested policies toward financial stability. Also, the group encouraged the public to suggest ways through which it can establish better guidelines for crypto.
The report read, “the FSB is looking for feedback from the general public about its recent proposals for crypto regulation.”
The Ongoing Crypto Winter Triggered The FSB
Furthermore, the agency added that the maxim “same activity, same risk, and same regulation” should serve as the foundation for a practical regulatory framework. Klaas Knot, the chairman of the FSB, said the ongoing saga in the crypto space had triggered the board’s attention.
“The ongoing “crypto winter” has provided more support for our analysis of the fundamental weaknesses that already exist in the crypto and DeFi space.” Knot added that these markets pose a significant risk to the world’s financial stability.
He argued that the risks might come sooner than later. Meanwhile, he concluded that policymakers globally are working on regulatory structures that would identify, evaluate, and address such risks.
Presently, the board has no power to enforce the law. However, it can present suggestions, advisory services, and recommendations to lawmakers.