(Kitco News) - After a year filled with high-profile failures and questionable risk management practices, Europe’s Financial Stability Board (FSB) is preparing to lay out its recommendations for regulating the crypto industry in early 2023.
Dietrich Domanski, the outgoing secretary-general of the FSB, informed the Financial Times of this plan during a recent interview in which he noted that the recent developments with FTX have highlighted that it’s “urgent to address risks” within the crypto industry.
Global policymakers have yet to come together to establish global rules for the regulation of crypto, instead choosing to enact regional rules that have enabled companies like FTX to skirt the laws and operate in multiple jurisdictions without the necessary oversight.
For this reason, the FSB is planning to establish a timeline for global regulators to implement its recommendations on crypto regulation, which will be released in the coming months. Once a set of global rules has been established by the FSB, it will be up to national politicians and regulators to write them into law.
“One objective of this work plan is precisely to counter a perception that all this (work on cryptocurrency) is disperse and slow and is not focused on a single common goal,” Domanski said. He went on to add that there was “strong agreement” among the members of the FSB about what crypto regulation should look like moving forward.
“Many crypto market participants argue that authorities are hostile to innovation. I would say so far, authorities have been fairly accommodating . . . recent events have reinforced the recognition that it is indeed urgent to address risks,” he said.
According to Domanski, the goal is to create a regime where crypto service providers “would be held to the same standards as banks [...] if they provide the same service that banks provide.” He suggested that this would have helped prevent the implosion of companies like FTX since it would not have met “the criteria for sound governance” that the rules would demand.
Key areas of concern following the collapse of FTX and Terra/Luna include how to deal with firms where “there is a combination of different activities that are traditionally separate”, the need to “clarify governance arrangements and ensure transparency” and how to “safeguard” client funds to avoid a destabilizing run on a cryptocurrency, Domanski said.
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| FTX collapse prompts the Financial Stability Board to focus on crypto regulation |
As it stands now, the crypto regulation that legislators in Europe agreed to back in July will not be implemented until 2024. Domanski defended the FSB’s record on developing crypto regulation, highlighting that when they first began to look at the market in 2017, there were legitimate questions about what there was to regulate and whether they should adopt an approach of tighter regulation or “let it burn.”
According to Domanski, it was imperative that the FSB better understand the crypto markets before setting rules. “All of those who say, you should move faster, you should do more, I would invite them to follow a global co-operative process . . . and then tell me where there are spots that we could have moved faster,” he added.
Last week, the FSB met in Basel and the FTX debacle featured prominently on the meeting's agenda. The group stressed the need for “ongoing vigilance and the urgency of advancing the policy work program by the FSB and the standard-setting bodies to establish a global framework of regulation and supervision, including in non-FSB member jurisdictions.”
