FSB warns of risks from gaps in global crypto regulation

“Different rules could lead to . . . dynamics which could exacerbate shocks,” said FSB Secretary-General John Schindler, noting that early signs of such risks are already emerging.

The report was released during the IMF and World Bank annual meetings in Washington, where differing approaches to crypto regulation were a central topic. The FSB noted that with Donald Trump’s administration adopting a more crypto-friendly stance, the United States is moving toward supportive policies, while Europe remains cautious and China continues to uphold a strict ban on most crypto activity.

Among 40 jurisdictions surveyed, only Bermuda and the Bahamas have fully implemented rules for crypto lending and margin trading. The lack of such frameworks elsewhere, the FSB warned, could trigger chain defaults and cascading failures during periods of market stress.

The report also highlighted the growing links between traditional banks and crypto markets. As of Q2 2024, major banks collectively managed under $25 billion in clients’ crypto assets, but the FSB cautioned that as this exposure increases, systemic risks could grow sharply.

He also warned of mounting regulatory arbitrage, as major firms move operations to more permissive jurisdictions, complicating efforts to maintain global financial stability.