The G20’s Financial Stability Board (FSB) has warned that the world’s crypto regulations remain fragmented and inconsistent, creating serious gaps that could harm global financial stability.

The watchdog stated that countries have made some progress in establishing rules, but not enough to keep pace with the rapidly growing $4 trillion crypto market. The FSB’s latest review warned that weak coordination between countries and uneven adoption of crypto standards limit oversight of digital assets.

G20 watchdog tells countries to act faster on crypto rules

The FSB stated that many governments are still moving too slowly to implement its first set of crypto rules, and that global efforts to create clear and coordinated crypto regulations remain weak and scattered.

The FSB’s Secretary General, John Schindler, stated that regulators must share information and coordinate their actions to prevent any part of the global market from becoming a weak spot for financial risk or regulatory evasion. He explained that when countries fail to cooperate, they create loopholes that crypto companies and investors can easily exploit.

Schindler explained that traders or firms can easily avoid strict regulations by relocating to countries with looser laws, as every nation attempts to establish its own rules without collaborating with others. He believes regulators must act in concert so that the global market does not become vulnerable and susceptible to abuse.

The FSB was established to help world leaders prevent another global financial crisis collapse, following the 2008 financial crisis. In its latest review, the agency examined how 29 key jurisdictions, including the United States, the European Union, Hong Kong, and the United Kingdom, implemented its guidance on crypto and stablecoin regulations.

However, major countries like El Salvador did not participate in the review, which left significant gaps in understanding how the market operates worldwide.

Schindler also noted that the risks associated with crypto are rising rapidly, citing the global crypto market’s nearly doubling in value over the past year, which now stands at around $4 trillion. He warned that the chances of problems spreading are much higher as more people invest and as crypto becomes linked with banks and other financial institutions.

Stablecoin rules remain weak even as the market grows fast

The FSB stated that its primary concern at present is the lack of robust and comprehensive regulations. People and businesses use them every day to move money quickly between countries, to trade on exchanges, or to store digital funds more affordably than Bitcoin or Ethereum. However, the FSB noted that this safety can be misleading because there are no clear global rules to ensure sufficient real assets back the coins.

Schindler warned that people and investors worldwide would panic if a large stablecoin suddenly failed or could not honor its promise to be equal to one U.S. dollar. He said governments and regulators must work closely together and share information, rather than creating separate sets of rules that do not align, as the effects of a stablecoin crash could be dire. 

The FSB also stated that the United States has already begun implementing its first official rules for stablecoins. However, the agency pointed out that other major markets, such as the European Union, the United Kingdom, and major Asian financial centers, have been slower to act. The existing rules are uneven from one country to another due to these delays. 

Schindler said no single country can keep its financial system completely safe as long as a divide exists because the weakest point in the chain can affect everyone else.

The FSB recommended eight measures to help countries build stronger and more consistent rules for crypto assets. It stated that governments should move faster to enact clear laws that define what stablecoins are, who is allowed to issue them, and how their reserves should be held and verified.

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

If you're reading this, you’re already ahead. Stay there with our newsletter.