Inadequate crypto assessment and patchy regulations mean that regulators need to step up to the mark in the digital currency space, according to the FSB.
The warning comes as the Switzerland-based FSB published a report on crypto-assets, which considers work underway, regulatory approaches and potential gaps at the G20 finance ministers and central bank governors. The report concludes with the recommendation that the G20 keep the topic of regulatory approaches and potential gaps, including the question of whether more coordination is needed, under review.
FSB said that the lack of global standards could be a reason why cryptocurrencies don’t fall within the scope of payment regulators.
Digital asset regulation has become a big topic in 2019 after the rapid rise and fall in cryptocurrency prices at the end of 2017 and 2018 respectively.
Regulations differ for cryptocurrencies
The FSB published its framework for monitoring of financial stability implications of crypto-assets in October 2018 and last reported to the G20 on the work of the international organisations in July 2018.
The report covers the work of the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO), the Financial Action Task Force (FATF), the Organisation for Economic Co-operation and Development (OECD), and the FSB.
Cryptocurrency regulations differ from country to country, and even state-to-state. For instance, China adopted a hawkish stance on crypto and drove out both miners and crypto exchanges. While Japan had a more favorable view of the sector. The US and Britain are still undecided about their response.
The agency concluded that this challenge makes the goal of a robust framework all the more important.
Need for standardized rules
While cryptocurrencies, a term that includes bitcoin and No.2 digital coin ethereum, have only existed for a decade, they have created a headache for regulators across the globe. The highly volatile market has created further trouble for governments and central banks, and crypto-awareness for the corporate keeps increasing.
Quick technological change meant the risks associated with crypto-asset markets and the level of significance of potential regulatory gaps will keep evolving.
A forward-looking approach to monitoring crypto-assets can help provide a basis for identifying potential gaps and areas that should be prioritised or focused on.
With the rise has come renewed interest from risk-tolerant investors. Major financial firms including Fidelity International have also moved to offer cryptocurrency-related services.
The House of Commons Treasury Committee launched its Digital Currencies inquiry on 22 February 2018 for the UK to examine the role of digital currencies in the UK, consider the potential impact of distributed ledger technology, also known as blockchain on financial institutions and financial infrastructure; and evaluate the regulatory response to digital currencies from the Government, the Financial Conduct Authority (FCA) and the Bank of England, and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation.
Maya Kumar, Head of UK and Ireland Luno has said on regulation of cryptocurrencies: “I would say there’s a misconception that it’s anti-authoritarian. The internet is de-centralized rather than anti-authoritarian; it’s a means of transmitting information. It’s not a negative, it’s just creating efficiencies. Cryptocurrency is similar.”