International Standard Setters Call for Tougher Rules on Crypto Asset Safeguarding and Regulation Amidst Allegations of Misconduct

International Standard Setters Call for Tougher Rules on Crypto Asset Safeguarding and Regulation Amidst Allegations of Misconduct

On Monday, international standard setters called for more stringent regulations to safeguard crypto clients’ assets and prevent conflicts of interest, following numerous allegations of misconduct during a turbulent year in the cryptocurrency market.

Companies like FTX and Celsius have faced accusations of poor record-keeping and the misuse of customer funds, prompting action from the Financial Stability Board (FSB), a regulatory body comprising representatives from about two dozen jurisdictions, including the U.S., EU, China, and the U.K. The FSB published recommendations to ensure a consistent and comprehensive regulatory framework for the crypto sector, building upon proposals initially introduced in October. The primary focus is on curtailing the behaviors allegedly exhibited by firms such as FTX and Celsius.

In response to the events of the past year, which have underscored the inherent volatility and structural vulnerabilities of crypto-assets and related players, the FSB introduced new norms that may compel major conglomerates to segregate certain activities and functions. The goal is to bolster the protection of clients’ assets.

FTX, among other companies, has faced a barrage of allegations concerning inadequate record-keeping and misappropriation of customer funds. Additionally, the co-founder and former CEO of Celsius, Alex Mashinsky, was arrested in New York on multiple charges related to misleading investors and manipulating token prices for personal gain.

The rationale for more rigorous global regulations was also influenced by recent incidents like the collapse of crypto-focused banks, the temporary de-pegging of Circle’s USDC stablecoin two months ago, and the abrupt downfall of the terraUSD stablecoin in May 2022, which marked the onset of a new crypto winter.

Across the globe, regulatory approaches towards crypto differ. While the European Union has crafted a bespoke law known as the Markets in Crypto Assets (MiCA) regulation, the U.S. Securities and Exchange Commission (SEC) is seeking to apply existing century-old rules originally designed for traditional financial instruments.

The principles outlined by the FSB are designed to be flexible enough to accommodate both approaches, with an emphasis on continuity. FSB Secretary General John Schindler clarified that this global framework does not entail a complete rewrite or the creation of an entirely new regulatory rulebook for crypto assets. He stressed that crypto asset activities are not as distinct from traditional financial activities as some may believe, advocating that similar rules should apply.