FSB Unveils ‘Same Activity Same Risk’ Crypto Rules

Financial Stability Board

Same activity, same risk, same regulation.

That’s the guiding principle behind the proposed regulatory framework for cryptocurrency released by the Financial Stability Board (FSB) on  Monday (July 17).

The framework, the international watchdog group says, “provides a strong basis for ensuring that crypto-asset activities and so-called stablecoins are subject to consistent and comprehensive regulation, commensurate to the risks they pose, while supporting responsible innovations potentially brought by the technological change.”

The FSB is proposing regulations that would require crypto platforms to segregate customer funds from their own assets and clearly delineate functions to prevent conflict of interest, with regulators making sure of strong cross-border cooperation and oversight.

The proposals follow a year of turmoil in the crypto sector, which has been rocked by market downturns, regulatory battles involving major players like Binance and Coinbase, and criminal proceedings against the founders of troubled firms like Celsius and FTX.

The FSB argues all countries — even those outside its scope — should apply the regulations, noting that FTX was headquartered in the Bahamas, which isn’t a board member.

“Therefore, cryptoasset players need to stop operating outside the regulatory perimeter or in non-compliance with existing rules,” FSB Secretary General John Schindler told reporters, per  a report by Reuters.

It is a perceived lack of regulatory guidance that has caused many crypto companies to look to countries other than the U.S. to do business.

Coinbase CEO Brian Armstrong had warned in April that crypto firms are going to start building in “offshore havens” if the U.S. and Great Britain don’t establish clear regulations.

“I think the U.S. has the potential to be an important market for crypto, but right now we are not seeing that regulatory clarity that we need,” Armstrong said, weeks before his company was sued by the Securities and Exchange Commission.

“I think in a number of years if we don’t see that regulatory clarity emerge in the U.S. we may have to consider investing more elsewhere in the world.”

Meanwhile, as noted here in January, traditional finance companies had been urging the FSB to impose tougher rules on the crypto sector.

Some of the public comments taken by the FSB recommended extending the regulatory perimeter, getting more clarity on how to segregate and protect customer assets, and require separation of activities — thus applying the same standards that traditional finance players are required to follow.