FSB: Global standard setters will work together to deal with DeFi regulation

It is reported that the Financial Stability Board (FSB) issued a report saying that it would work with other international standard-setters to determine how to regulate decentralized financial (DeFi) activities in different jurisdictions. According to the report, the FSB will also explore the extent to which it will strengthen its proposed policy recommendations in the field of encryption to address the specific risks of DeFi. In addition, it plans to work with other international standard-setters to explore how to fill the data gap in measuring and monitoring the interconnection between DeFi and traditional finance.

Interpretation of this information:

The Financial Stability Board (FSB) has issued a report stating that it will be collaborating with other international standard-setters to establish a regulatory framework for decentralized financial activities (DeFi) across multiple jurisdictions. The key objective of these efforts is to address the specific risks of DeFi and to strengthen the FSB’s proposed policy recommendations in the field of encryption. Furthermore, the FSB plans to work alongside other global entities to bridge the current gap in data measurement and monitoring, which is essential for evaluating the interconnection between DeFi and traditional finance.

The report highlights the rapid growth of DeFi over the past year, with an increasing number of market participants utilizing decentralized platforms to carry out financial activities such as lending, borrowing, trading, and investing. Despite the advantages of DeFi, the growth of this sector has raised concerns regarding the potential implications for financial stability and consumer protection. The FSB recognizes that the absence of a clear regulatory framework for DeFi poses a significant challenge for policymakers and market participants alike.

Therefore, the FSB’s regulatory efforts will focus on mitigating specific risks associated with DeFi, such as operational risks arising from smart contract vulnerabilities, technology-related risks, and financial stability risks. In addition, the FSB intends to leverage its existing policy recommendations on encryption and explore the extent to which they can be applied to the DeFi sector.

Lastly, the FSB recognizes the need to enhance the measurement and monitoring of DeFi activities, including their relationship with traditional finance. The identified data gap poses a critical challenge for both policymakers and market participants to identify emerging risks and develop appropriate mitigation measures. Therefore, the FSB intends to collaborate with other international standard-setters to explore potential solutions to address this data gap.

In conclusion, the FSB’s report highlights the regulatory challenges associated with DeFi and highlights the need to develop a collaborative approach among international standard-setters to address these challenges. The three keywords that summarize the report are DeFi regulation, encryption, and data measurement.