by Huw Jones
LONDON, Oct 11 (Reuters) – Crypto-asset companies that carry out banking activities should have capital like traditional banks, regulators proposed on Tuesday, laying down the first global rules to regulate an industry which has lost 2,000 billion dollars (2,061 billion euros) since its peak in November 2021.
The Financial Stability Board (FSB), the coordination body for financial regulation of the G20, has proposed to its members nine recommendations to be implemented.
The cryptocurrency sector is currently subject to practically no rules in most countries, apart from the obligation to fight against money laundering and the financing of terrorism, while at the same time the authorities are constantly warning investors about the risks incurred such as losing all of their investments.
According to FSB Chairman Klaas Knot, also a member of the Governing Council of the European Central Bank (ECB) and President of the Central Bank of the Netherlands, “the crypto winter”, a term used to describe the sharp fall and sustainability of cryptocurrencies, led the board to strengthen its review of current structural vulnerabilities.
The total capitalization of the cryptocurrency sector, which had reached some 3 trillion dollars in November 2021, has shrunk to around 935 billion dollars. The FSB, however, believes that it is not large enough to threaten financial stability but that rules are needed to regulate a probable recovery.
“Concerns about the risks they pose to financial stability are therefore likely to come back to the fore quickly,” Klaas Knot wrote in a letter to G20 finance ministers meeting in Washington this week.
The FSB recommends setting up a framework for monitoring and managing risks and data in crypto-asset companies. He also wants a company in difficulty in the sector to be able to be easily filed for bankruptcy.
“Several crypto-asset institutions failed in the recent market rout due to their liquidity vulnerability, undercapitalization, concentrated exposures to risky entities, and risky business and trading activities,” he said. FSB.
The FSB proposals were subject to public consultation until December 15 and are due to be finalized by mid-2023, when FSB members are expected to accelerate their implementation. (Reportage Huw Jones; French version Claude Chendjou, edited by Sophie Louet)