Published: July 13th, 2022
The Financial Stability Board (FSB), the global entity responsible for monitoring financial activity in G20 countries, announced this week it is developing a proposal for new 'robust regulation and supervision’ of cryptocurrencies.
A report will be presented to G20 central banker and finance ministers in October outlining the FSBs proposed new rules to control and supervise stablecoins and other crypto assets.
‘Digital currencies are evolving rapidly, however the recent turmoil in cryptocurrency markets is another reminder of their structural vulnerabilities and intrinsic volatility. Despite these concerns they are also becoming increasingly connected with the traditional financial system,” the FSB said in a press release.
Amongst its concerns the organisation noted how quickly the failure of one market player can ripple out into the wider crypto ecosystem. ‘Investors can suffer large losses while wider market confidence is threatened as risks are transmitted to other parts of the system.’
Those comments are being interpreted as a reference to the dramatic collapse of Terra in May. The breakdown of Terra’s ecosystem created a liquidity crisis and bankrupted several well-known crypto finance firms and hedge funds.
It will mark the first time the FSB has proposed new rules for the crypto space. Though the organization monitors the industry closely, up to this point it has played of a background role and any recommendations have been made directly to the G20 central bankers and treasury officials it reports to.
News that a set of global rules for crypto markets was met with a muted response from crypto market watchers.
Peter Harrera, an analyst at DappRadar, wrote in a blog that while its common in traditional finance to view clear rules as a vital step towards mass adoption of cryptocurrencies, for many crypto purists, regulations simply stifle creativity and freedom.
‘Regulations make it harder for bad actors to exploit the space. However, they can’t guarantee a fraud-free marketplace. We will need to see what the FSB actually proposes’.
Kene Ezeji-Okoye, co-founder of the Millicent stablecoin (which is partially funded by the UK government), told Bloomberg that more detail is needed before crypto markets can make a determination, though he does have concerns.
'The problem with trying to write a comprehensive rulebook for crypto is that by the time you’ve finished, the game has already changed. There will be new players, new services, new assets classes and new technologies.’
He did admit that recent events have shown that stablecoins are ‘one area where end-to-end regulation is likely required.’
In May, famously pro-crypto Portugal became the latest country to extend its taxation and finance rules to reign-in crypto activity. The move is significant Portugal had built-up a reputation as a haven for digital currencies and crypto innovation.
All that changed very suddenly when the country's finance ministry did an about-face and announced that all crypto assets in the country will be subject to capital gains taxes.
Previously the government took a hands-off approach to cryptocurrency transactions, treating them as cash exchanges and effectively excluding them from capital gains taxes by definition.
Crypto trades are now subject to a 28 per cent levy. That quickly shredded Portugal’s reputation as one of the most attractive places on the planet for crypto projects and investments.
Given the level of tech and private investment crypto has attracted to the country, Portuguese finance officials were keen to avoid being seen as suddenly anti-crypto. The government said it was simply regulating crypto as it had always planned to. It simply wanted to see how other countries were adapting their tax and regulatory regimes and make sure Portuguese rules were coordinated with others.
Finance Minister Jorge Medina told Reuters that because there is now a lot more knowledge about crypto, ‘Portugal can benefit from the experience of other countries.’
In practice that means following moves in other countries to treat crypto-trading profits as capital gains. Australia’s tax authority, for example, published a warning to crypto holders in April warning anyone who had not disclosed taxable earnings from the sale of crypto assets that they could be penalized under the law.
And Portugal may not be done imposing crypto-related taxes. The finance minister said in a June press conference that cryptocurrencies presented regulators with a complex set of new financial instruments that existing rules and tax requirements aren’t designed for. Portugal might need to impose VAT, stamp duty, or even property taxes on assets like NFTs.
‘We are looking at all regulations and taxes that might involve crypto transactions,’ said Medina. ‘This isn’t about generating headlines. Portugal needs a legal approach that covers crypto-finance in all its dimensions.’
Just a month before in April 2022, Lisbon financial regulators gave the green light to the launch of Bison Digital Assets, a new division of High Street lender Bison Bank offering crypto custody and brokerage services.
The company website said Bison’s business and retail customers can ‘now benefit from a wider range of products and services and take advantage of the latest developments in financial services.’
The new bank also has its sights on institutional investors and high-net-worth individuals. The company hasn't said yet which cryptocurrencies it will support, though it’s a safe bet BTC and ETH will be on offer, along with some stablecoins like USDT and USDC.
The move by the FSB is part of a broader US-led push to create a consistent legal approach to cryptocurrencies around the world, even as America develops its own nationwide legislative framework for cryptocurrencies.
Washington doesn’t treat cryptocurrencies as legal tender but does categorise cryptocurrency exchanges as ‘money transmitters.’ The US Internal Revenue Service (IRS) does tax cryptocurencies because they fall under the definition of ‘a digital representation of value that functions as a medium of exchange and a store of value’.