G20 FSB warns that large gaps in cryptocurrency regulation will harm global economy

The G20 Financial Stability Board (FSB) has warned that global cryptocurrency regulation remains fragmented and inconsistent, creating serious gaps that could undermine global financial stability.

The watchdog said countries have made some progress in establishing rules, but not enough to keep up with the rapidly growing $4 trillion cryptocurrency market. The FSB’s latest review warned that monitoring of digital assets is being limited by weak coordination between countries and uneven adoption of cryptographic standards.

G20 watchdog tells countries to respond more quickly to virtual currency rules

The FSB said many governments are still moving too slowly to introduce the first crypto regulations, and global efforts to develop clear and coordinated crypto regulations remain weak and fragmented.

FSB Director-General John Schindler said regulators needed to share information and coordinate their actions to prevent any part of global markets from becoming a weak link for financial risks and regulatory evasion. He explained that the failure of countries to cooperate creates loopholes that can be easily exploited by crypto companies and investors.

Schindler explained that because each country tries to establish its own rules without cooperating with others, traders and companies can easily avoid strict regulations by relocating to countries with looser laws. He believes regulators need to act in concert to prevent global markets from becoming vulnerable and susceptible to exploitation.

The FSB was established to assist world leaders in preventing another global financial crisis collapse following the 2008 financial crisis. In its latest review, the agency looked at how 29 major jurisdictions, including the United States, the European Union, Hong Kong and the United Kingdom, have implemented guidance on regulating cryptocurrencies and stablecoins.

However, major countries such as El Salvador were not part of the review, leaving a huge gap in understanding how markets operate around the world.

Schindler also pointed out that the risks associated with cryptocurrencies are rapidly increasing, noting that the global cryptocurrency market has nearly doubled in value over the past year and now stands at around $4 trillion. He warned that the more people invest and the more cryptocurrencies become tied to banks and other financial institutions, the more likely the problem will spread.

Stablecoin rules remain weak despite rapid market growth

The FSB said its main concern at the moment is the lack of robust and comprehensive regulation. People and businesses use them every day to quickly send money between countries, trade on exchanges, or store digital funds at more affordable prices than Bitcoin or Ethereum. However, the FSB noted that this security could be misleading as there are no clear global rules to ensure there are enough real assets to back the coins.

Schindler warned that people and investors around the world would panic if a large stablecoin suddenly went bankrupt or failed to live up to its promise of parity to US$1. He said the impact of a stablecoin crash could be dire, and governments and regulators need to work closely together and share information rather than creating separate and inconsistent rules.

The FSB also stated that the United States has already begun implementing the first official rules regarding stablecoins. But the agency said other major markets, including the European Union, the United Kingdom and major financial centers in Asia, have been slower to respond. Because of these delays, existing rules are uneven from country to country.

Schindler said that no single country can keep its financial system completely secure as long as fragmentation exists because the weakest link in the financial chain can affect all other countries.

The FSB recommended eight measures to help countries develop stronger and more consistent rules for crypto assets. The report said governments should move faster to enact clear legislation defining what stablecoins are, who is allowed to issue them, and how their reserves should be held and verified.

The agency said the benefits of innovation and growth in digital finance can only be sustained if there is trust, and trust depends on strong rules that protect users and prevent abuse.