The Financial Stability Board (FSB), the G20’s risk watchdog, has issued a report underscoring how privacy laws are creating significant obstacles to cross-border cryptocurrency regulation. These laws, designed to protect sensitive data, restrict the flow of information between countries, delaying global oversight and hindering the identification of systemic risks in the crypto market.
Regulators face substantial challenges in sharing crucial data with foreign counterparts due to secrecy and privacy regulations, which often lead to delays in responding to cooperation requests. In some cases, fear of data breaches or lack of reciprocal agreements discourages local companies from providing information altogether. This results in a fragmented regulatory landscape that complicates efforts to manage financial stability risks.
The FSB noted that regulators frequently rely on incomplete or inconsistent commercial data sources, surveys, and other fragmented datasets due to the lack of reliable regulatory data. This dependency limits their ability to accurately assess risks in the rapidly evolving cryptocurrency space. The report warns that uneven implementation of privacy laws could lead to regulatory arbitrage, where firms exploit gaps in oversight, increasing compliance costs and posing threats to financial stability.
Stablecoins are particularly emphasized for their potential systemic risk, with the FSB highlighting that privacy issues complicate international oversight processes. The board stressed the need for jurisdictions to collaborate on balancing data protection with transparency, though achieving common ground is challenging due to varying privacy standards across borders. While the report does not propose specific solutions, it calls for further discussions to foster more effective cross-border cooperation and a unified approach to crypto regulation.
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