The Financial Stability Board (FSB), which brings together the G20 countries, recommended international regulation of crypto assets, which many stable cryptocurrencies, including Terra and its 'token' Luna, would not comply with.
In a letter, the President of the Financial Stability Board (FSB), Klaas Knot, from the Netherlands, tells the G20 finance ministers and central bank governors that “an effective regulatory framework should ensure that crypto-asset activities are subject to comprehensive regulation commensurate with the risks they pose".
G20 finance ministers and central bank governors meet in Washington, starting today and running through October 14.
Luna and Luna classic, Terra 'tokens', went down in mid-September after a South Korean court issued an arrest warrant against Do Kwon, the network's founder, and others.
The Terra ecosystem already collapsed in May after massive sales and a large withdrawal of capital after its UST stablecoin, pegged to the dollar, lost parity with the dollar in the face of the imminent hike in interest rates by the US Federal Reserve ( Fed).
"Cryptoassets and markets must be subject to effective regulation“, because they are growing rapidly and there may come a time when they pose a threat to global financial stability due to their size, structural problems and links to the traditional financial system, adds the FSB.
It also warns that risks can increase rapidly and therefore timely policy responses are needed.
Regulation should ensure that crypto assets and intermediaries that have an economic function equivalent to that of traditional financial instruments and intermediaries are regulated in a similar way, following the principle of “equal activity, equal risk, equal regulation”.
The FSB wants cryptocurrency markets to be regulated due to risks of contagion to traditional finance, especially short-term funding markets.
The proposed European Union (EU) regulation, known as MiCA (Markets in Crypto-assets), also considers that proportionality is necessary and provides for special treatment for stable digital currencies (“stablecoins”).
MiCA obliges cryptocurrency buying and selling platforms to explicitly warn consumers of the risk of loss.
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Furthermore, all companies offering cryptocurrency services will need an authorization to operate within the EU.
National authorities will be required to issue permits within three months.
The FSB sees MiCA as an important step forward and a change in the regulatory landscape.
FSB Secretary General Dietrich Domanski said at a virtual press conference that he has consulted with stakeholders and that the responses will be incorporated into the final recommendations that they will publish in mid-2023.
The supervisory body urges cooperation and coordination between countries and the exchange of information.
It recognizes the progress made in establishing robust cryptocurrency regulation and supervision, but says there is still much to be done.
The FSB, based in the Swiss city of Basel, was created at the London G20 meeting in 2009 in response to the financial crisis and has been overseeing financial stability ever since.
