The Financial Stability Board (FSB) has issued a new warning that fragmented crypto regulations are enabling regulatory arbitrage, allowing companies to move between jurisdictions with weaker oversight.
The global body’s review of nearly 40 countries found “significant gaps and inconsistencies” that could undermine financial stability and slow the development of a resilient digital asset market.
The FSB said crypto providers and stablecoin issuers are shopping for lenient jurisdictions to establish operations before expanding internationally, exploiting loopholes that arise from uncoordinated national rules.
Weak Oversight Threatens $4 Trillion Digital Asset Market
The report warned that countries’ varying approaches to regulating the $4 trillion crypto market could threaten financial stability as some governments move faster than others in policing exchanges and issuers. Cross-border oversight remains “fragmented, inconsistent, and insufficient,” the FSB said, noting that while some enforcement mechanisms exist, they rarely extend to broader supervisory or systemic stability objectives.
The FSB’s latest chart shows the EU, Japan, and Hong Kong leading regulatory development, having finalized comprehensive crypto frameworks, while nations like China, India, and Saudi Arabia remain in the earliest stages of implementation.
Europe Highlights “Forum Shopping” Among Crypto Firms
The European Banking Authority (EBA) echoed the FSB’s concerns, revealing that several crypto firms are engaging in “forum shopping”, selecting jurisdictions with lighter supervision and weaker anti-money laundering controls to enter the EU market.
Both regulators warned that without stronger global coordination, these gaps could widen, creating uneven standards and systemic vulnerabilities as digital assets become more integrated into mainstream finance.
