Treliant Takeaway…FSB Global Regulatory Framework for Crypto Asset Activities

Financial Stability Board (FSB) Global Regulatory Framework for Crypto Asset Activities

• Source: fsb.org

Treliant Takeaway:

Treliant can help firms with the regulatory compliance objectives surrounding the crypto assets and crypto market activities in designing and implementing a plan aligned to your objectives and risk-based needs.

Highlights:

The FSB has published two sets of high-level recommendations for the regulation, supervision, and oversight of crypto asset and stable coin activities.

These high-level recommendations reflect the feedback comments from the Feb 2022 and Oct 2022 public consultation to addressing the potential financial stability risks posed by crypto assets and stablecoins by introducing an appropriate regulatory, supervisory, and oversight framework at a jurisdictional level.

The final recommendations draw on the implementation experiences of jurisdictions and build on the principles – ‘same activity, same risk, same regulation’; high-level and flexible; and technology neutral – that informed the consultative framework. In light of the crypto market events over the last year that exposed the “intrinsic volatility and structural vulnerabilities” of crypto assets and crypto markets, the FSB has strengthened both sets of high-level recommendations in three areas:

• Ensuring adequate safeguarding of client assets;
• Addressing risks associated with conflicts of interest; and
• Strengthening cross-border cooperation.

The recommendations focus on addressing risks to financial stability and do not comprehensively cover all specific risk categories related to crypto-asset activities such as: AML/CFT; data privacy; cyber security; consumer and investor protection; market integrity; competition policy; taxation; monetary policy; monetary sovereignty, and other macroeconomic concerns. It is worth noting that Central Bank Digital Currencies (CBDCs), i.e., Central Bank liabilities, are not subject to these recommendations.

FSB has outlined nine recommendations for the regulation, supervision, and oversight of crypto-asset activities and crypto markets.

1. Regulatory powers and tools – authorities should have adequate resources to regulate, supervise, and oversee crypto-asset activities and markets and enforce relevant laws and regulations.
2. General regulatory framework – authorities should have in place comprehensive regulatory rules and policies applicable to crypto asset activities, issuers, and service providers proportionate to their risk, size, complexity, and system importance.
3. Cross-border cooperation, coordination, and information sharing – aimed to facilitate a shared understanding of the risks and activities of crypto assets, issuers, and service providers across jurisdictions in normal times and in times of stress.
4. Governance – with particular emphasis on clear and direct lines of responsibility and accountability for all functions and activities they are conducting.
5. Risk management – that addresses all material risks associated with the crypto-asset activities.
6. Data collection, recording, and reporting – have robust frameworks, including systems and processes, for collecting, storing, safeguarding, and timely and accurate reporting of data including relevant policies and procedures.
7. Disclosures – to users and relevant stakeholders comprehensive, clear and transparent information regarding their governance framework, operations, risk profiles, and financial conditions.
8. Addressing financial stability risks arising from interconnections and interdependencies – both within the crypto-asset ecosystem, as well as between the crypto-asset ecosystem and the wider financial system.
9. Comprehensive regulation of crypto asset service providers with multiple functions – including facilitating transactions, settlement and clearing, non-custodial and custodial wallet provisioning, market-making, lending and borrowing, proprietary trading, and issuance, etc.

In terms of next steps, FSB will continue to coordinate international regulatory and supervisory approaches for crypto-asset activities by end of 2024. By end of 2025, FSB intends to review the implementation of the recommendations in consultation with the relevant SSBs (standard setting bodies) and international organizations.