While regulation for the crypto space remains a work in progress, the Financial Stability Board (FSB) responded to recent turmoil by warning crypto enthusiasts Monday that they aren’t above the law.
The FSB’s statement on the regulation of cryptoassets and markets stressed that they must be regulated and subject to oversight that matches the risks they pose at both the domestic and international levels.
These risks were once largely theoretical but they have materialized in recent weeks as the value of major cryptoassets has plunged, high-profile stablecoins have failed and several firms have collapsed.
The FSB said these events highlighted the crypto markets’ “intrinsic volatility, structural vulnerabilities and increasing interconnectedness with the traditional financial system.”
Recent events revealed the risk of contagion both within the crypto sector and between crypto and traditional financial markets, the group noted.
“In addition to imposing potentially large losses on investors and threatening market confidence arising from crystallization of conduct risks, the failure of a market player can also quickly transmit risks to other parts of the cryptoasset ecosystem,” it said.
This may also “have spill-over effects on important parts of traditional finance such as short-term funding markets,” it added.
As a result, the FSB stressed that cryptoassets and markets must face oversight that addresses their increasingly relevant risks.
To that end, the FSB said crypto assets generally, and stablecoins in particular, must adhere to regulations.
“Even as jurisdictions consider potential changes to their frameworks, so-called stablecoins and other cryptoassets do not operate in a regulation-free space and must adhere to relevant existing requirements where regulations apply to address the risks these assets pose,” it said.
Given that cryptoassets may be performing the same basic economic function as traditional financial assets, “they are subject to relevant regulations applicable to the underlying economic and financial nature of cryptoassets,” the FSB argued.
Additionally, the global policy group said crypto firms must ensure they’re meeting all of their existing legal obligations — including both crypto-specific rules and overarching legal requirements.
The FSB reiterated its commitment to promoting consistency and cooperation among regulators and policymakers around the world to develop risk-based, technology-neutral rules for the crypto sector based on the principle of “same activity, same risk, same regulation.”
The FSB said it will report to the G20 finance ministers and central bank governors on crypto regulation in October, including high-level recommendations for regulating stablecoins.
It’s also planning a public consultation on proposed recommendations for promoting international consistency in the oversight of cryptoassets and markets.