Summary of this article
G20’s FSB warns fragmented crypto rules threaten global financial stability.
Stablecoins rapidly grow, few countries implement complete regulatory frameworks.
Eight recommendations aim for consistent global rules, cross-border cooperation.
The G20's Financial Stability Board (FSB) has highlighted significant gaps in countries' efforts to regulate the rapidly expanding cryptocurrency market, warning that fragmented rules could pose risks to global financial stability. The FSB, which was founded in the wake of the 2008 financial crisis, released a set of suggestions in 2023 to align cryptocurrency regulations with those of the conventional banking industry.
In its latest review, the board observed that while significant progress has been made, international coordination and regulation implementation remain inconsistent and insufficient to handle the global character of cryptocurrency markets. Financial stability risks are currently limited but are rising, as Bitcoin, Ethereum, and other major cryptocurrencies have more than doubled the global crypto market's value to around $4 trillion over the past year. Reuters reported that FSB Secretary General John Schindler said, "This is consequential. These crypto assets can move across borders very easily, much more easily than other financial assets."
A particular area of concern is stablecoins, cryptocurrencies generally pegged to the U.S. dollar, which have seen rapid growth of nearly 75 per cent over the past year to just under $290 billion.
According to the report, very few countries have established complete regulatory frameworks for stablecoins, despite their growing integration with the traditional financial system. Schindler emphasised the importance of international monitoring, adding, "Even if countries have their own regulatory regimes, they can still be impacted by the activities of crypto companies that are headquartered offshore."
Reuters reported that the warning follows previous crypto shocks, including the collapse of FTX and the failure of TerraUSD/Luna in 2022, which revealed weaknesses in the largely unregulated crypto market.
The FSB's report reviewed the implementation of crypto and stablecoin regulations across 29 jurisdictions, including the U.S., the EU, Hong Kong, and the U.K. It pointed out that even small markets can create systemic risks if left unregulated, echoing concerns raised by European regulators earlier this year.
The FSB has laid out eight recommendations for jurisdictions to accelerate the adoption of globally consistent rules and enhance cross-border cooperation. As cryptocurrencies expand in size and complexity, the FSB's warning emphasises the critical need for governments to tighten their regulatory frameworks to avoid potential financial instability and protect investors worldwide.
