Ministers from the world’s 20 largest economies could next week discuss the systemic change that decentralized finance will bring, which could mark a turning point in global crypto finance (DeFi) regulation.
The FSB, which drafted the present financial market regulations after the financial crisis of 2008, plays an important role in establishing international standards. It outlined its cryptocurrency agenda in the form of two consultations back in July ahead of a meeting of G20 finance ministers scheduled for next Wednesday and Thursday in Washington.
By the middle of next week, the Financial Stability Board (FSB), a global regulator, will announce its plans to regulate the cryptocurrency market. It may then have to decide whether to further refine the tools already in its toolbox or take an entirely different approach to controlling the decentralized finance (DeFi) ecosystem.
Many markets are volatile, but the FSB is most concerned about the potential for crypto instability to spread and destabilize the traditional financial system. This could occur, for example, if the instability affects short-term funding markets such as money market funds, or if a stablecoin becomes widely accepted as a means of payment for common items.
High-level stablecoin standards now in effect by the FSB call on nations to ensure significant stablecoins are covered by regulatory oversight, but even those proposals have been sporadically adopted.
It will review the rules now in place for stablecoins, which are digital assets that aim to maintain their value relative to fiat money and were originally released in October 2020. Additionally, the FSB will present a new draft report on “enhancing international consistency of regulatory and supervisory approaches for other crypto assets and crypto asset markets”, which has the potential to encompass a significantly broader range of Web3 ecosystem activities.
However, there are several reasons to believe that this time the criteria will be both stricter and better observed.
The market has changed since 2020, when the biggest threat was the entry of the big tech company then known as Facebook (now Meta) with its support for the stablecoin it was then building, known as Libra (later diem, later sunk). This time, real assets like Tether (USDT) have grown significantly. While they haven’t taken over the financial system yet, as some people feared Facebook might, they still raise concerns. Many of the FSB’s goals were justified by the stunning collapse of the terraUSD stablecoin earlier this year, including calls for an adequate stabilization mechanism and the maintenance of adequate reserves.
This means the FSB may need to completely overhaul its stablecoin regulations. In addition, the EU and the two most powerful FSB members, the US, are now taking action. They will likely want others to do the same to discourage cryptocurrency companies from taking their customers abroad to less regulated countries as they see it. (China, the second major economy in the G20, may choose to simply abstain after more or less choosing not to regulate cryptocurrency, instead banning it outright.)
Since President Joe Biden urged them to do so, American regulators have released a number of studies detailing their plans for dealing with cryptocurrencies in recent weeks. The Financial Stability Oversight Council stated this week that stablecoin regulation and a regulator for non-security tokens like bitcoin (BTC) are badly needed. A push by the FSB could help Congress advance legislation currently hampered by the end of the current legislative session and midterm elections. The EU is now trying to ensure others catch up, having finalized its own Markets in Crypto Assets Regulation (MiCA). Mairead McGuinness, head of the European Commission’s financial services division, told CoinDesk that she hopes for more international cooperation on cryptocurrencies in one of the first statements she made to the media after an agreement was reached on MiCA in June.
Stefan Berger, the EU politician who oversaw negotiations on the rule, seems to agree. Thanks to MiCA, Berger tweeted on Wednesday, “The EU is becoming the global standard-setter.” He claimed to have noticed keen interest in the bill during a visit to the US
In a speech in September, the governor of France’s central bank, François Villeroy de Galhau, mentioned the upcoming norms, stating that “by 2023 we will have a global, consistent and comprehensive framework for dealing with crypto assets”. And that paradigm might be helpful for some people in the industry. Consider the situation of Ripple, which is now trying to defend itself against a legal claim by the U.S. Securities and Exchange Commission that the cryptocurrency ZRP qualified as a security and that Ripple should have registered it with the federal government.
According to Sue Friedman, Head of Policy at Ripple, this type of regulatory uncertainty is an unexpected and negative surprise for companies, and an international framework could help. In an online interview, Friedman stated, “We definitely don’t want to create an ecosystem where an asset is designated as non-collateral in one jurisdiction but not eligible as collateral in another.”
Summary of the news:
- The next global crypto standards could challenge regulators’ technical mantra
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