The Financial Stability Board (FSB) has issued a warning that fragmented crypto regulations across nearly 40 jurisdictions are enabling regulatory arbitrage, allowing companies to exploit gaps by moving to areas with weaker oversight.
The review found significant gaps and inconsistencies that could undermine financial stability and slow the development of a resilient digital asset market, valued at $4 trillion.
Crypto providers and stablecoin issuers are actively shopping for lenient jurisdictions to establish operations before expanding internationally, with cross-border oversight described as fragmented, inconsistent, and insufficient.
The European Banking Authority (EBA) echoed these concerns, revealing that crypto firms engage in forum shopping within the EU, selecting areas with lighter supervision and weaker anti-money laundering controls.
John Schindler, FSB's secretary-general, stated that different rules could exacerbate shocks, and the report warned of potential cascading failures during market stress, particularly as stablecoin issuers hold reserves comparable to large money-market funds.
The FSB has issued eight recommendations, urging jurisdictions to close gaps through comprehensive assessments, improve data monitoring, and enhance cross-border cooperation to address systemic vulnerabilities.
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