The Financial Stability Board (FSB) has proffered a solution to the patchy regime of digital asset regulation that has characterized the industry over the years. Under the new framework proposed by the international financial monitoring body, the FSB wants the regulations applicable to financial institutions to apply to digital assets.
“Effective regulatory and supervisory frameworks should be based on the principle of ‘same activity, same risk, same regulation,” read the FSB’s proposal. “Where crypto-assets and intermediaries perform an equivalent economic function to the one performed by instruments and intermediaries of the traditional financial sector, they should be subject to equivalent regulation.”
The Board noted that the reason for uniform regulation across several jurisdictions is to mitigate the associated risks of virtual currencies while “harnessing potential benefits of the technology.” Members of the public can share their views on the new framework of applying banking regulations to the digital asset industry, which the FSB says will encourage consistency.
The report focuses on stablecoins and urges policymakers to ensure that stablecoin issuers back their assets as a whole to prevent a collapse akin to Terra’s in May. The public consultation will run until December 15, after which the FSB will collate and deliberate on the suggestions.
The recent turmoil in the markets has made it imperative for regulators to step up to the plate to exercise control over the markets. Head of the FSB, Klaas Knot, penned a letter to the G20 where he noted that “the current crypto winter has reinforced our assessment of existing structural vulnerabilities in these markets.”
The European Union’s brave attempt at unified regulation
The European Union (EU) has adopted a unified approach toward regulation with a relative degree of success. The EU recently passed the Markets in Crypto-Assets (MiCA), a law designed to streamline distributed asset technology (DLT) and virtual currency among the 27 member countries of the Union.
In addition to the MiCA, the European Securities and Markets Authority (ESMA) published a report on the DLT pilot regime as it looks to put up a united front to mitigate the risks associated with virtual assets in the financial sector.
Around the world, a regional strategy for regulating the industry is virtually non-existent as jurisdictions regulate the sector to their countries’ peculiar needs. An example is the scatted nature of virtual currency taxation around the world, with countries like Portugal having zero taxes imposed while India has taxes as high as 30% on gains from trading digital currencies.
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