Financial Stability Board (FSB) reveals 2024 plans for crypto regulation and tokenization

The Financial Stability Board (FSB), an international organization overseeing the global financial system, has unveiled its comprehensive plans for 2024. In a document outlining its agenda, the FSB strongly emphasizes monitoring the implementation of its global regulatory framework for crypto-asset activities while addressing the financial implications of digital innovations such as tokenization and artificial intelligence (AI).

Global crypto regulatory framework

One of the primary objectives outlined in the FSB’s 2024 Work Programme is to ensure the effective implementation of the global regulatory and supervisory framework for crypto-asset activities, markets, and international stablecoin arrangements. 

This framework, developed by the FSB in July 2023, presented a set of guidelines recommended to the G20, representing the world’s 20 leading economies.

The framework emphasizes the need for crypto platforms to segregate clients’ digital assets from their funds and to maintain a clear separation of functions to prevent conflicts of interest. Additionally, it calls for rigorous cross-border cooperation and oversight by regulatory authorities.

Focus on tokenization

While the FSB’s initial work program released in July 2023 included exploring asset tokenization projects and their potential financial stability implications, the organization is now gearing up to complete this work in 2024. 

The FSB plans to prepare a detailed report for the G20 on the financial stability implications of tokenization.

Tokenization, which involves representing real-world assets as digital tokens on a blockchain, has gained significant attention in recent years. Understanding its impact on financial stability is crucial for regulators and policymakers as they navigate the evolving landscape of digital finance.

AI’s role in financial stability

Another concern for the FSB in 2024 is examining artificial intelligence (AI) and its potential influence on financial stability. The organization is set to compile a report on recent developments in AI and their potential impact on the global financial system.

The FSB’s timeline for releasing the report on AI’s financial stability implications is November 2024. As AI continues to advance and play a more prominent role in financial services, assessing its potential risks and benefits in the context of overall financial stability is essential.

Enhancing cyber resilience

The FSB is actively enhancing cyber resilience in its ongoing efforts to bolster the financial sector’s resilience. This includes designing a format for the incident reporting exchange (FIRE) to promote greater convergence in how financial institutions report incidents to monetary authorities.

The FIRE format, proposed by the FSB in April 2023, seeks to standardize incident reporting among financial institutions. This initiative aims to facilitate better information exchange among regulatory authorities by streamlining the reporting process and ensuring consistency. 

Cybersecurity threats continue to pose significant risks to the financial industry, making improving incident reporting a crucial endeavor.

European Union’s response

The Association for Financial Markets in Europe (AFME) has recently cited the FSB’s stance on crypto regulation. AFME has urged European Union lawmakers to incorporate decentralized finance (DeFi) into the first EU-wide crypto framework.

This move reflects the growing recognition of DeFi as a transformative force within the crypto space. Integrating DeFi into regulatory frameworks is a complex task that requires careful consideration of its unique features and potential risks.