What has happeend?

The Financial Stability Board (FSB) has published a report considering work under way, regulatory approaches and potential gaps in respect of cryptoassets, recommending that the G20 carries on monitoring them.

What does this mean?

The report starts by giving an update on some of the past, present and future work on cryptoassets some international organisations are involved with, such as the Financial Action Task, the Basel Committee or the Committee on Financial Markets of the Organisation for Economic Co-operation and Development.

The report states that these organisations work on a number of fronts, mainly focusing on investor protection, market integrity, anti-money laundering and bank exposures and financial stability monitoring.

They monitor and analyse developments in these markets, "setting supervisory expectations for firms and clarifying how international standards apply to cryptoassets", the FSB said.

Noting that regulatory approaches towards cryptoassets vary from one jurisdiction to the next, the report then considers where gaps arise.

The report notes that "gaps may arise in cases where [crypto]assets are outside the perimeter of market regulators and payment system oversight".

To some extent, according to the FSB, this may reflect the nature of cryptoassets, which may have been designed to function outside established regulatory frameworks.

For example, certain cryptoassets may not perform the economic functions of traditional securities and may be used as a means of exchange or payment, while in in some jurisdictions, these assets may not qualify as securities or derivatives or be covered by market regulation.

The FSB said:

"Ultimately, there could be policy inconsistencies if economically equivalent assets are treated differently for regulatory or supervisory purposes."

In addition, gaps may also arise from the absence of international standards or recommendations.

However, assessing the significance of potential gaps is challenging, given the rapidly evolving nature of the cryptoasset ecosystem and related risks, according to the report.

"A forward-looking approach to monitoring cryptoassets can help provide a basis for identifying potential gaps and areas that should be prioritised or focused on," the FSB said.

The response by authorities will need to balance the case for multilateral action to facilitate a coherent response on the one hand, with an acknowledgement of differences among jurisdictions’ legal frameworks and the fast-moving state of this technology on the other.

To conclude, the report recommended that the G20 keep the topic of regulatory approaches and potential gaps, including the question of whether more co-ordination is needed, under review.

The report was delivered to G20 finance ministers and central bank governors ahead of their meeting on 8-9 June in Japan.

Later this month, a new Interpretative Note to Recommendation 15, setting out more detailed implementation requirements for effective regulation and supervision/monitoring of virtual asset services providers, will be formally adopted as part of the FATF Standards, together with a new Guidance on Virtual Currencies.

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