The G-20’s Financial Stability Board Report on Global Cryptocurrency Regulation
The G-20, or Group of Twenty, is an intergovernmental forum made up of 19 economies and the European Union. Currently hosted by Indonesia, India will take over the G-20 presidency for one year in December and has made digital asset regulation a top priority. The Financial Stability Board (FSB) report, released in October, will help the Indian government flush out a legal framework for dealing with cryptocurrency in India, and how they will lead their policies towards cryptocurrency during its presidency of the G-20.
Speaking at the Indian Council for Research on International Economic Relations on November 1, Finance minister Nirmala Sitharaman indicated that cryptocurrency asset regulation would likely be a top priority under India’s leadership. According to a senior Indian government official, who remained anonymous, India has been awaiting the FSB report “which will be important from the crypto legislation perspective.”
So, what’s in the FSB report?
In early October, the FSB published a report proposing an international framework to address the global regulatory environment for cryptocurrency assets. In an effort to address the growing risks and challenges in the cryptocurrency ecosystem, the FSB is seeking public comments on its proposed framework until December 15.
According to the report, “An effective regulatory framework must ensure that crypto-asset activities are subject to comprehensive regulation, commensurate to the risks they pose, while harnessing potential benefits of the technology behind them.”
The FSB is following the principle of “same activity, same risk, same regulation” meaning that crypto-assets and intermediaries executing the same economic functions as their traditional finance counterparts should be subject to the equivalent regulation.
The report also calls for regulatory and supervisory guardrails to address the financial stability risks around crypto-assets and markets. Compliance in governance, risk management, reporting and disclosure should be proportionate to the size and complexity of their respective activities. Authorities are also empowered to identify interlinkages between digital assets and the traditional finance system and cooperate and exchange information with international counterparts to address cross border spillover.
With these goals in mind, the FSB put forth the two following recommendations:
1. International consistency surrounding the regulation, supervision, and oversight of crypto-assets. These recommendations apply to any type of digital asset activity, issuer, and service provider that may pose a significant financial stability risk.
2. Revisions to the FSB’s previous report, High-level Recommendations for Global Stablecoin Arrangements, to address associated risks towards financial stability more effectively. The guidance is expanded to strengthen governance by clearly defining the responsibilities of issuers in redemptions rights of single-fiat referenced global stablecoins. The revised recommendations clarify that reliance on algorithms and arbitrage activities are not effective stabilization mechanisms.
Under these guidelines, any digital asset activity that poses a financial stability risk should become subject to comprehensive and coordinated global regulation.
India’s policies towards cryptocurrency
India has been one of the fastest-growing markets for cryptocurrency trading, despite the government’s push against digital asset trading. Digital currency exchanges were nonexistent in India five years ago. Now, approximately 20 millioninvestors hold more than $5.3 billion in cryptocurrency, representing the second-largest number of crypto traders worldwide. According to Chainalysis, the Indian market grew 641% from 2020 to 2021 alone.
Cryptocurrency’s rapid growth and success has spurred calls for industry regulation. But New Delhi has wavered significantly in its ability to provide a solid regulatory framework for this burgeoning market. In 2018, India effectively banned all cryptocurrency trading, instructing the country’s banks not to service customers exchanging digital currencies. This decision was overturned by the country’s Supreme Court in 2020, but the government makes no secret of its distaste for digital asset trading. Officials fear that cryptocurrency could jeopardize India’s economic stability while facilitating terrorist financing and money laundering.
In February, Sitharaman announced plans for India to unveil its own cryptocurrency next year while implementing two new taxes on digital currencies: a 30% tax on income generated from crypto transactions and a 1% tax on the exchange itself. Cryptocurrency was still technically illegal in India, and the government got its way — trading volume plummeted by 70% with some exchanges seeing a 90% drop in the weeks following.
“There’s been a phenomenal increase in transactions in virtual digital assets,” Sitharaman said. “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
India has been batting around potential legislation to regulate cryptocurrency, though it has stalled. A Reuters report in 2021 said the draft would include a provision that those who “infringe the law could be subject to arrest without a warrant and being held without bail.” The bill would introduce jail time, but not simply for trading cryptocurrency. They would only apply if you violated the new tax rules recently instituted by the government.
What this means for India’s G-20 Presidency
Sitharaman and the Reserve Bank of India (RBI) have highlighted the importance of a global framework on cryptocurrency regulation. India’s G-20 presidency could further this cause, with the right regulation in mind.
“No one single country can succeed in individually, being in a silo, trying to regulate the crypto assets,” Sitharaman said.
Chief Economic Advisor to the government, V. Anantha Nageswaran, said at the event that identifying “consensus-based solutions for accelerating the scale and scope of the response of the global community to many transboundary challenges, such as regulation of virtual assets,” would be the third objective of India’s G20 Presidency.
If India is focused on cryptocurrency regulation, its presidency of the G-20 could be the first step to developing a global regulatory framework for digital assets. India’s perspective on global digital currencies has been conservative and reserved, but if they are open to following the FSB’s proposed framework, cryptocurrency in India and its leadership in developing global guidelines could be a positive step forward in the regulatory environment.
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