G20 Crypto Watchdog Publishes Final Recommendations For Fundamental Safeguards To Avoid FTX-Like Crashes

The collapse of FTX in November 2022 exposed vulnerabilities within crypto firms, prompting the FSB to assert that all countries, including non-members, should implement the recommendations.

The Financial Stability Board (FSB) of the G20 emphasised on Monday that globally agreed rules necessitate crypto firms to implement fundamental safeguards to avoid the types of collapses witnessed at FTX exchange and other crypto casualties. The FSB published final recommendations on Monday, responding to the G20's request for guidance on supervising companies involved in trading crypto assets like Bitcoin. The watchdog also revised its existing recommendations for stablecoins following the demise of TerraUSD/Luna coins.

These recommendations draw on established principles from traditional finance to ensure the sector incorporates robust governance to prevent conflicts of interest, effective risk management, and disclosures that safeguard customer funds from mingling with company assets. The aim is to preempt the potential risks to financial stability as crypto assets gain further connections to the broader financial system.

The collapse of FTX in November 2022 exposed vulnerabilities within crypto firms, prompting the FSB to assert that all countries, including non-members, should implement the recommendations. Despite FTX being based in the Bahamas, which is not an FSB member, the watchdog stresses the importance of crypto asset players adhering to regulatory boundaries and existing rules.

FSB Secretary General John Schindler emphasised that such players can no longer claim a lack of regulatory clarity since the framework clearly outlines the applicable standards.

Bitcoin has experienced a resurgence, reaching 13-month highs as the sector recovers from last year's slump. Ripple Labs Inc's landmark legal victory on Thursday, challenging the extent to which tokens fall under US securities law, further boosted market confidence.

While the European Union has already approved comprehensive rules for crypto asset markets, the FSB's "global baseline" minimum standards are designed to accommodate jurisdictions that seek to adopt more stringent measures.

Additional measures from global banking and securities watchdogs, such as the Basel Committee and IOSCO, are expected to further refine the FSB's norms, providing more granular guidance for regulating day-to-day operations in the crypto market.

The FSB, whose members commit to applying agreed norms, will conduct a review by the end of 2025 to assess the implementation of these standards.

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