G20 Watchdog Flags Major Regulatory Gaps in Crypto

The Financial Stability Board has sounded the alarm on fragmented cryptocurrency regulations worldwide. The G20’s risk oversight body highlighted that inconsistent implementation may hinder effectiveness and lead to regulatory arbitrage. The warning comes as digital assets continue to integrate with traditional financial systems.

Nearly all FSB member jurisdictions have plans to develop or revise regulatory frameworks for crypto-assets and stablecoins. Progress has been made across member nations. However, cross-border crypto-asset activities from offshore jurisdictions present elevated regulatory and supervisory challenges for authorities.

Crypto Regulatory Fragmentation Creates Loopholes

The FSB’s October 2024 status report revealed significant concerns about implementation consistency. Widespread non-compliance with applicable laws and regulations significantly undermines efforts to implement the FSB Framework and other international standards. It also creates opportunities for businesses to exploit differences between jurisdictions.

Some service providers may not be aware of their regulatory obligations and may require intensive efforts from supervisory authorities to inform them and enforce these obligations. The challenge intensifies when providers begin operations or scale activities rapidly.

Regulatory gaps require additional supervisory attention and enforcement resources. Recent jurisdictional experiences indicate that significant enforcement resources are needed for cases where service providers may need to discontinue or alter certain activities. These situations demand substantial time and regulatory capacity.

Stablecoin Regulatory Gaps Pose Systemic Risks

Stablecoins should be subject to specific regulatory requirements due to their vulnerability to sudden loss in confidence and potential runs on the issuer or underlying reserve assets. The FSB emphasized the critical need for robust stablecoin frameworks.

EMDEs could be exposed to macro-financial risks arising from the use of foreign currency-pegged GSCs, which can increase financial stability risks by destabilizing financial flows and straining fiscal resources. Emerging markets face heightened vulnerabilities from global stablecoin arrangements.

The report indicates that interest in stablecoins is relatively higher in emerging economies than in advanced nations. Macroeconomic and demographic factors drive this adoption pattern. Without proper oversight, these arrangements could trigger broader financial instability.

Implementation Challenges Slow Crypto Regulatory Progress

Surveyed jurisdictions noted many challenges in fully implementing the FSB Framework at this time, including a lack of institutional capacity and expertise. The constant evolution of digital assets complicates regulatory efforts further.

Most jurisdictions rely on existing rules to regulate crypto-assets and stablecoins. Some have created separate regulatory regimes subject to ongoing improvements. Formal gap assessments remain incomplete in many territories.

The FSB organized workshops to facilitate knowledge sharing among policymakers and supervisors. These sessions brought together participants from multiple jurisdictions. Cross-border cooperation remains essential for effective oversight.

Path Forward for Global Crypto Regulation Standards

The FSB and standard-setting bodies continue to promote globally coordinated regulatory approaches and are working to ensure comprehensive oversight of crypto-asset markets. A peer review report examining progress in implementing the FSB’s global regulatory framework is expected to be published in October 2025.

Capacity-building programs and outreach sessions actively support implementation beyond G20 nations. The IMF, FSB, and Financial Action Task Force collaborate to share knowledge and raise global awareness of policy frameworks.

Conclusion

Authorities must balance innovation with financial stability protection. The principle of “same activity, same risk, same regulation” guides framework development. Consistent application across jurisdictions will reduce arbitrage opportunities.