Cryptocurrency Report from the FSB: These Altcoins Are On!

The FSB, which coordinates the creation of financial rules amid the G20, says we need broader cryptocurrency regulation. Their statement proposes comprehensive international regulation on DeFi and stablecoin platforms.

Regulators propose first global rules before ‘crypto winter’ is resolved

Stablecoins may be forced to centralize distributed issuances and major crypto platforms under plans put forward by the Financial Stability Board (FSB) on Tuesday. The FSB, a watchdog and standard setter for the global financial system backed by central banks and ministries of finance, would like to see a comprehensive international rulebook addressing multilateral conflicts of interest in the wake of the recent crypto market turmoil. This breakthrough came after the May crash of TerraUSD or, more broadly, algorithmic stablecoins.

He cites the FSB’s concerns about liquidity mismatches, high leverage, and inappropriate business models in the highly connected crypto ecosystem.

Expand, innovate

A report released for consultation by the FSB on Tuesday urges jurisdictions around the world to expand existing financial norms and develop new ones for new crypto risks. Promising a more comprehensive policy review next year, it delays further exploration of new areas such as DeFi. But he warns that not disclosing method roles could prevent regulators from figuring out who is responsible for some, so-called decentralized structures.

The report noted that some crypto companies are actually violating the law by classically combining other activities such as processing, lending, custody and brokerage, and urging national authorities to step in and separate them if there are increased risks or conflicts of interest. According to the text in the report:

Various cryptocurrency activities are brought together, often within a single entity, sometimes in violation of current regulations. Authorities should exercise their powers and use their tools in an appropriate form and in accordance with judicial legal frameworks, including the separation and separation of certain functions.

The FSB warns of extra risks when wallet providers offer services for stablecoins, cryptocurrencies that seek to defend their value against traditional assets like the US dollar. The report said disruptions to a wallet service could allow for malicious transfers and potentially lead to a stampede from panicked customers, often unclear on what would happen if a provider went bankrupt.

It is seeking to tighten international stablecoin rules, although another report released for the consultation on Tuesday said many market players are struggling to keep up with current norms going into 2020. “Current stablecoin regulations do not meet multiple FSB’s High-Level Recommendations,” the report said, citing board-wide shortcomings in areas such as governance, risk management, and regulatory disclosures.

Closing the stablecoin door

Under new FSB plans, stablecoins that can be used in multiple jurisdictions may be forced to centralize administration and cannot use automated algorithms to protect expense, such as “flawed” TerraUSD. According to the report:

Authorities should require that the issuance of the GSC [global stablecoin] be managed and operated by one or more identifiable and responsible legal entities or persons. A GSC should not rely on arbitrage activities and derive its value from algorithms to maintain a fixed price at all times.

This aims to address the precious flaws in the terraUSD design, which claims that the asset can be exchanged for a companion token, LUNA. In a critical form, this is due to liquid trading, which is unlikely in situations where there is a sudden collapse of faith. The FSB has no enforcement power and will rely on peer pressure to avoid a scenario where crypto companies might pick and choose the jurisdiction that offers the lightest regulatory burden.
The FSB aims to complete the recommendations by the middle of next year.

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