International Regulation Crypto Asset Activities

Crypto-assets and markets must be subject to effective regulation and oversight commensurate
to the risks they pose. The turmoil earlier this year highlighted a number of structural
vulnerabilities in those markets. It exposed inappropriate business models, significant liquidity
and maturity mismatches, the extensive use of leverage, and a high degree of
interconnectedness within the crypto-asset ecosystem. These vulnerabilities were amplified by
a lack of transparency and disclosures, flawed governance, inadequate consumer and investor
protections, and weaknesses in risk management. While the limited spillovers outside the cryptoasset ecosystem reflect the still low interconnectedness with the traditional financial system, the
situation could change rapidly as crypto-asset markets recover. If interconnections continue to
grow, the failure of a major market player, in addition to imposing potentially large losses on
investors, may have spillover effects on traditional finance such as short-term funding markets
and on the real economy. Crypto-asset markets are fast evolving and could reach a point where
they represent a threat to global financial stability due to their scale, structural vulnerabilities and
increasing interconnectedness with the traditional financial system. The rapid evolution and
international nature of these markets also raise the potential for fragmentation or arbitrage.
Although the extent and nature of crypto-asset use varies somewhat across jurisdictions,
financial stability risks could rapidly escalate, underscoring the need for both timely and preemptive evaluation of possible policy responses as well as regulatory action where existing
requirements apply.
An effective regulatory framework must ensure that crypto-asset activities are subject to
comprehensive regulation, commensurate to the risks they pose, while harnessing potential
benefits of the technology behind them. Such regulation should ensure equivalent regulatory
outcomes where they pose risks similar to those posed by traditional financial activities, while
addressing novel features of crypto-assets. In some instances this may require the application
of existing rules to crypto-assets, in others it may require new guidance or regulation specific to
crypto-assets to deliver equivalent outcomes. Where crypto-assets and intermediaries perform
an equivalent economic function to one performed by instruments and intermediaries in the
traditional financial system, they should be subject to regulations in line with the principle of
“same activity, same risk, same regulation”. Crypto-assets are predominantly used for
speculative purposes and many currently remain non-compliant with or outside the scope of
existing requirements. Regulation should also take account of novel features and specific risks
of crypto-assets and harness potential benefits of the technology behind them.
The regulatory framework should reflect the relevance of crypto-assets for financial stability and
support proper market functioning. Authorities should provide effective guardrails around cryptoassets and markets to address potential financial stability risks that could arise from the growing
interlinkages between the crypto-asset ecosystem and the traditional financial system. High
regulatory standards are required in particular for crypto-assets – such as stablecoins – that
could be widely used as a means of payments and/or store of value, as they could pose
significant risks to financial stability. Regulation should provide for adequate transparency,
accountability, market integrity, investor and consumer protections, and AML/CFT defences
across the crypto-asset ecosystem.

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With these considerations in mind, the FSB is submitting to the G20 Finance Ministers and
Central Bank Governors a comprehensive set of proposals for the regulation and supervision of
crypto-asset activities. They consist of:
(i)

proposed recommendations to promote the consistency and comprehensiveness of
regulatory, supervisory and oversight approaches to crypto-asset activities and markets
and to strengthen international cooperation, coordination and information sharing; and

(ii) a review of the FSB’s high-level recommendations of October 2020 for the regulation,
supervision, and oversight of “global stablecoin” arrangements.
The FSB is soliciting comments from the public until 15 December 2022 on its proposals and the
questions set out below and encourages all interested stakeholders to participate in the
consultation. The FSB’s proposals, along with the work undertaken by the standard-setting
bodies (SSBs), should provide a foundation for greater consistency and cooperation among
authorities’ approaches to the regulation and supervision of crypto-asset activities and markets.
The following sets out

1.

■

key issues and challenges in developing a comprehensive and consistent regulatory
approach that captures all types of crypto-asset activities that could give rise to financial
stability risks (section 1);

■

policy initiatives at jurisdictional and international levels (section 2);

■

the FSB’s proposed approach for establishing a comprehensive regulatory framework
(section 3); and

■

a way forward for finalising the proposals (section 4).

Issues and challenges for regulation and supervision

Many crypto-asset activities and markets are not compliant with applicable regulations or are
unregulated. The applicability of regulations relies on the classification of crypto-assets in the
jurisdictional legal framework. In some jurisdictions, certain crypto-assets qualify as regulated
financial instruments whereas, in others, crypto-asset activities fall outside of the regulatory
perimeter. Even where crypto-asset activities fall within the existing regulatory perimeter, market
participants may be operating in non-compliance with applicable regulations.
Data gaps make the assessment of financial stability risks from crypto-asset activities
challenging. Significant informational and data shortcomings persist, including the reliability and
consistency of available data, given the failure of many participants in crypto-asset activities to
comply with applicable laws and regulations, or, in some cases, that activities may fall outside
the regulatory perimeter and the associated reporting requirements. Appropriate proxies to
monitor on an ongoing basis the presence and extent of vulnerabilities are difficult to construct.
The limited regulatory data currently available, including on interconnections between cryptoasset markets and the traditional financial system, offer only a partial and potentially inaccurate
picture.

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Jurisdictions’ regulatory approaches need to capture the novel features of crypto-asset activities
that can give rise to financial stability risks. Users of both stablecoins and other crypto-assets
rely on critical services of issuers, wallet providers and other intermediaries, which can pose
significant risks. The extensive use of distributed ledger technology as well as the decentralized
nature of operations and/or governance have contributed to opaqueness and lack of
accountability in governance of both stablecoin arrangements and other crypto-assets. It can be
difficult to identify the entities or natural persons that should be held accountable for good
governance and regulatory compliance. If non-compliant or unregulated, these operating modes
and new types of services entail potential risks for financial stability. In addition, a notable feature
in crypto-asset markets is the use of settlement assets (i.e., stablecoins) that may be neither
central bank money nor commercial bank money 1.
Crypto-asset activities require comprehensive cross-sectoral regulation. Crypto-asset
intermediaries and service providers often combine activities that could fall under different
sectoral regulatory regimes. For example, crypto-asset trading platforms often offer a vertically
integrated suite of services, such as marketplace trading, order pairing, settlement and clearing,
lending, proprietary trading, matched trading, custody, and brokerage services. Some trading
platforms also act as intermediaries for the issuance of stablecoins and their promotion and
market making. They may issue their own native crypto-assets or develop blockchain-based
products. While most of these individual functions exist in traditional finance, typically regulations
require that such activities be conducted by different entities and, in some cases subject them
to different sectoral standards. By contrast, various crypto-asset activities are often bundled
together within a single entity, sometimes in non-compliance with existing regulations. This may
require the disaggregation and separation of certain functions and activities or the cumulative
application of sectoral regulations requirements in order to fully address the risks arising from
the compounding effects of different functions.
Cross-border cooperation, coordination and information sharing are essential given the inherent
global nature of crypto-asset activities. The cross-border nature of crypto-assets raises
regulatory, supervisory and enforcement challenges. Jurisdictional differences in legal and
regulatory frameworks and supervisory and enforcement outcomes underscore the potential for
regulatory fragmentation and arbitrage without cross-border cooperation and information sharing
consistent with authorities’ respective mandates and jurisdictional requirements.

2.

Policy initiatives at international and jurisdictional levels

Jurisdictions are making progress towards ensuring that crypto-assets and crypto-asset
activities are subject to robust regulation and supervision, but much work remains. 2 In some
jurisdictions legislative initiatives are underway to provide authorities with bespoke powers to
regulate crypto-asset activities. In other jurisdictions, authorities can apply existing regulatory
powers to regulate the evolving crypto-asset landscape, including both crypto-assets and service
providers such as platforms. Several jurisdictions have proposed, and some have recently
adopted, specific rules to address the risks stemming from stablecoin arrangements while others

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2

CPMI-IOSCO (2022): Application of the Principles for Financial Market Infrastructures to stablecoin arrangements, July.
In June 2022 the FSB conducted a stock-take of existing regulatory and supervisory policies and approaches to crypto-assets
in 24 FSB member and 24 non-FSB member jurisdictions represented on FSB Regional Consultative Groups (RCGs).

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have amended, plan to amend, or have applied existing rules to bring stablecoin arrangements
within their jurisdiction’s regulatory perimeter. Regulation motivated by financial stability
considerations complements other regulation to ensure adequate transparency, accountability,
market integrity, investor and consumer protections, and AML/CFT defences across the cryptoasset ecosystem.
The FSB and the standard setting bodies have made progress in their review of whether and
how existing international standards can apply to crypto-assets including stablecoin
arrangements. In July 2022, the Bank for International Settlements’ Committee on Payments
and Market Infrastructures (CPMI) and the International Organization of Securities Commissions
(IOSCO) published guidance on the Application of the Principles for Financial Market
Infrastructures (PFMI) to stablecoin arrangements. In June 2022, the BCBS published its second
consultative document on the prudential treatment of banks’ exposures to crypto-assets. 3 In
March 2022, IOSCO published its “Decentralized Finance Report,” 4 which offers a
comprehensive review of the fast-evolving DeFi market, including its products, services and
principal participants. In June 2019, the Financial Action Task Force (FATF) extended its antimoney laundering and counter-terrorist financing (AML/CFT) measures to virtual assets (VAs)
and virtual asset service providers (VASPs) to prevent criminal and terrorist misuse of the
sector 5, and updated its 2019 Guidance for a Risk-Based Approach to VA and in October 2021
to cover stablecoins and DeFi. 6

3.

The FSB’s proposed approach for
comprehensive regulatory framework

establishing

a

Effective regulatory and supervisory frameworks should be based on the principle of
“same activity, same risk, same regulation”. Where crypto-assets and intermediaries perform
an equivalent economic function to one performed by instruments and intermediaries of the
traditional financial sector, they should be subject to equivalent regulation. This is true regardless
of how a particular crypto-asset is characterized (e.g., as a payment, security or other
instrument). For example, crypto-assets intended to serve as settlement assets for payments
(such as stablecoins) may replicate functions that require oversight from central banks and
payment system regulators. Meanwhile, the issuance and distribution of such crypto-assets or
stablecoins in a manner that mirrors traditional bank-like functions should be subject to
regulation, consistent with global standards and regulation applying to commercial bank
activities (such as the BCBS standards), in order to deliver the same level of protection. In
addition, the issuance and trading of crypto-assets or stablecoins mirroring activities in the
traditional capital markets should be subject to market regulation that seeks to provide the same
level of investor protections and market integrity outcomes. Where crypto-assets have particular
features or specific risks, regulation should also take account of them.

3
4
5
6

Basel Committee on Banking Supervision (2022): Prudential treatment of cryptoasset exposures – second consultation, June.
IOSCO (2022), Decentralized Finance Report, June.
FATF (2019): The FATF Standards: FATF Recommendations (Amended in 2019).
FATF (2022): Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, July.

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Regulatory and supervisory guardrails must address the potential sources of financial stability
risks around different types of crypto-assets and markets. Crypto-asset issuers, intermediaries,
and service providers must be subject to adequate requirements for governance, risk
management, reporting and disclosure proportionate to the size, complexity, and risks of their
respective activities. Authorities should, consistent with their respective mandates, have the
capacity to identify and monitor interlinkages between the crypto-asset ecosystem and the
traditional financial system and cooperate and exchange information with their foreign
counterparts to identify and address cross-border spillovers and risks. Stablecoins that may be
widely used as means of payments and/or stores of value, could pose significant risks to financial
stability if not subject to robust regulatory and supervisory policies. Therefore, they should be
held to high regulatory standards, including in relation to availability of legal claims for users,
stability of value and redemption guarantees.
Reflecting these considerations, the FSB is proposing:
(i)

recommendations for the regulation, supervision, and oversight of crypto-asset
activities and markets (‘CA Recommendations’). The proposed recommendations
seek to promote the comprehensiveness and greater international consistency of
regulatory and supervisory approaches to crypto-asset activities and markets. These
recommendations apply to any type of crypto-asset activities and associated issuers,
service providers (including intermediaries such as crypto-asset trading platforms)
that may pose risks to financial stability;

(ii)

revisions to its High-level Recommendations for Global Stablecoin Arrangements to
address associated financial stability risks more effectively (‘GSC
Recommendations’). The revised recommendations emphasise the need for
authorities to be ready to apply relevant regulations to any stablecoins that could
become GSCs. They include guidance to strengthen the governance framework by
clearly defining the responsibilities of the actors and the redemption rights of single
fiat-referenced GSC by requiring these stablecoin issuers to provide robust legal
claim, guarantee timely redemption at par into fiat, and maintain effective stabilisation
mechanisms, among other revisions. The revised recommendations clarify that
reliance on algorithms and arbitrage activities are not effective stabilisation
mechanisms. Indeed, as the report describes, many existing stablecoins, including
Terra/Luna, would not meet the FSB’s high-level recommendations.

With these two sets of recommendations, all crypto-asset activities that pose or potentially pose
risks to financial stability should become subject to comprehensive and globally coordinated
regulation, supervision, and oversight. Whereas the CA Recommendations cover all cryptoasset activities and associated issuers, intermediaries and service providers, crypto-assets that
meet the definition of GSC should also be subject to the regulatory and supervisory
recommendations set out in the revised GSC Recommendations. The FSB’s proposed
recommendations taken together seek to achieve consistent and comprehensive regulatory
coverage of crypto-assets and markets, including stablecoins. The two sets of recommendations
are closely interrelated, reflecting the interlinkages between stablecoins and the broader cryptoasset ecosystem. They have been developed as stand-alone documents but are intended to
work together in light of these interlinkages and to be consistent where they cover the same
issues and risks (see table).

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Table: Coverage of the CA and GSC Recommendations
Regulatory principle

Coverage in GSC
recommendations

Coverage in CA
recommendations

Regulatory Powers

GSC Rec 1

CA Rec 1

Comprehensive oversight

GSC Rec 2

CA Rec 2

Cross-border cooperation

GSC Rec 3 with an Annex

CA Rec 3

Governance

GSC Rec 4

CA Rec 4

Risk management

GSC Rec 5

CA Rec 5

Data management

GSC Rec 6

CA Rec 6

Recovery and resolution
planning

GSC Rec 7

CA Rec 5

GSC Rec 8 with an Annex

CA Rec 7

Disclosures
Monitoring of
interconnections within the
crypto-asset ecosystem and
with the wider financial
system

CA Rec 8

Compliance before operation

GSC Rec 10

Redemption rights and
stabilisation mechanisms

GSC Rec 9

Multiple functions

4.

CA Rec 1

CA Rec 9

Way forward

The FSB will finalise the proposed recommendations by mid-2023 in light of feedback from the
public consultation. The FSB is soliciting comments from the public until 15 December 2022, on
the questions set out below. The FSB is encouraging all interested stakeholders to participate in
the consultation.
The FSB will continue to monitor developments and risks in crypto-assets and markets and to
set out a clear approach for the coordination of international regulatory and supervisory
approaches for crypto-asset activities to ensure that they are comprehensive, consistent and
complementary. In addition, the FSB is analysing developments and potential risks to financial

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stability stemming from decentralized finance (DeFi) and will consider in 2023 whether additional
policy work is warranted based on the findings from this work.
The SSBs will continue to examine and make revisions as needed to their standards and
principles or provide further guidance supplementing existing standards and principles in light of
the FSB recommendations once these have been finalised. The BCBS, CPMI, IOSCO and FATF
will continue to examine regulatory, supervisory and oversight issues and coordinate with each
other and with the FSB to ensure that crypto-assets and markets are subject to effective
regulation and oversight commensurate to the risks they pose.
The FSB will review progress in the implementation of its final recommendations by end-2025.
The review involves taking stock of the regulatory measures adopted by FSB member
jurisdictions and their outcomes, including analysis of relevant developments in crypto-asset
markets. The findings from this exercise may help inform a further review of the
recommendations or development of implementation guidance as necessary.