FSB Advocates Global Regulations For Decentralized Finance
The Financial Stability Board (FSB), one of the numerous international financial regulators, is clamoring for international standards to regulate the decentralized financial (DeFi) space.
The Bank for Worldwide Settlements (BIS) is backing the latest move by the FSB to ensure comprehensive implementation of the proposed regulations.
Risks of DeFi
In a published study on DeFi recently, the FSB highlighted the risks posed by decentralized finance to the economic stability of countries. The study focused on determining the flaws of the DeFi system, tracking the transmission links and assessing the development of a DeFi-based system.
The authors of the FSB study revealed that DeFi is similar in its operations to traditional finance (TradFi), despite offering a range of new services than TradFi. Meanwhile, the research authors’ opinions were made concerning the sector in which DeFi operates.
The reason behind the FSB research is that the DeFi system attempts to replicate certain activities in the conventional finance space. This, according to FSB, raises the risks of vulnerability due to the use of innovative technologies, the interlinking of the digital finance ecosystem and the absence of regulation.
Interestingly, the research authors explained that the much-talked-about decentralization associated with DeFi, as echoed by their founders, differs from what is currently seen in the industry. They believe decentralization in the DeFi space was possible when the sector was at its early stage and not in its current period.
Using this study, the FSB aims to collaborate with international financial bodies to evaluate the rules of decentralized finance from several jurisdictions. The FSB believes this will help prevent risks arising from decentralized finance technology.
Aiming For Global Crypto Regulation
Last December, the outgoing secretary general of the Financial Stability Board, Dietrich Domanski, revealed that managing risks in the crypto sector is possible. Domanski made the remarks in the aftermath of the FTX collapse, saying that the debacle would lead to the formation of ideas in 2023 by the FSB.
He added that the event would give his organization the cues to control the digital asset industry. Before the new year, the FSB, by its status as an international financial entity, has mapped out plans it intends to pursue to ensure cryptocurrency regulation.
Then, Domanski stated that one of the ways to ensure compliance and aid enforcement of rules is to hold crypto trading firms to the same standards as banks. The FSB official made the statement in response to the frequent collapse of crypto platforms and the widespread inaction of decision-makers about how to oversee the digital asset space.
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