Financial Stability Board Warns of Global Crypto Regulatory Gaps and Risks of Regulatory Arbitrage

Introduction

In November 2025, the Financial Stability Board (FSB) – the global authority that monitors and makes recommendations on international financial stability – issued a strong warning about major regulatory gaps across the global crypto ecosystem.

In its latest review, the FSB emphasized that inconsistent regulatory implementation across countries is creating opportunities for regulatory arbitrage, enabling crypto firms to shift operations to jurisdictions with weak oversight.
A recent industry survey shows that over 30% of large crypto service providers operate across three or more jurisdictions, highlighting the scale of cross-border regulatory fragmentation.

For stakeholders in crypto law, compliance, and digital assets, this warning reinforces the urgent need for coordinated, cross-border regulatory standards.

Background: The FSB’s Role in Global Financial Oversight

Established by the G20 in 2009, the Financial Stability Board plays a crucial role in coordinating financial regulation among major economies. Its mandates include:

• Strengthening global financial stability,
• Enhancing supervision of cross-border financial activities, and
• Promoting consistent regulatory frameworks. 

The FSB consists of members from 24 countries, international organizations such as the IMF, World Bank, BIS, and major standard-setting bodies, giving it significant global authority.

In 2023, the FSB introduced its Global Regulatory Framework for Crypto-Asset Activities, aiming to bring crypto markets in line with traditional financial standards. The 2025 review evaluates global progress in implementing these recommendations.

Findings of the FSB’s 2025 Review

According to the FSB’s latest global assessment, several key insights have emerged:

1. Uneven Implementation Across Jurisdictions

While many countries have advanced toward establishing regulatory frameworks, implementation remains fragmented and incomplete.
Some jurisdictions have fully aligned with FSB standards, but others still lack comprehensive oversight for crypto-asset service providers (CASPs) and stablecoin arrangements.
This imbalance creates uncertainty for market participants and weakens the collective resilience of the global crypto system.

2. Stablecoins Remain Underregulated

The FSB expressed concern that global stablecoin arrangements (GSCs) – digital tokens pegged to fiat currencies – pose systemic risks if not adequately supervised.
Despite regulatory progress in some markets, stablecoin frameworks lag significantly behind those for other financial instruments. This gap could lead to potential instability if a widely used stablecoin loses its peg or experiences operational failures.Recent incidents – including the 2022 TerraUST collapse and the 2023 temporary de-pegging of USDC – demonstrate how quickly instability can spread when oversight is inadequate.

If a widely used stablecoin faces operational failure or loses its peg, the risks could spill into the broader financial system.

3. Growing Risk of Regulatory Arbitrage

One of the report’s strongest warnings concerns the rising threat of regulatory arbitrage.

Crypto companies increasingly:

• Shift headquarters offshore
• Operate subsidiaries in lenient jurisdictions
• Exploit legal inconsistencies to avoid stricter supervision

The FSB noted that “crypto entities continue to exploit gaps and inconsistencies in national regimes, increasing cross-border risks” – a direct quote underscoring the severity of the issue.

Such practices enable risks to accumulate unnoticed in markets lacking transparency.

4. Data Gaps and Cross-Border Challenges

The FSB emphasised that crypto-asset markets operate globally, yet most regulations remain nationally focused.
Data gaps, inconsistent definitions of crypto activities, and inadequate coordination between regulators hinder effective supervision.
This lack of cooperation could amplify financial-stability risks if large-scale disruptions occur in unregulated or offshore markets.

Positive examples of coordinated frameworks include:

• EU’s MiCA (Markets in Crypto-Assets Regulation)
• Singapore’s holistic digital-asset licensing regime

These demonstrate how alignment can reduce systemic risks.

5. Call for Urgent Global Coordination

The report concludes with a call for greater international alignment.
The FSB urged member jurisdictions to:

• Fully implement the FSB’s 2023 framework,
• Strengthen cross-border data sharing, and
• Ensure consistent supervision of crypto and stablecoin activities.

Implications for the Crypto Industry

The findings carry broad implications for crypto exchanges, stablecoin issuers, and Virtual Asset Service Providers (VASPs): 

For Crypto Exchanges

Heightened Compliance Expectations

Rules will tighten as nations close regulatory gaps. Exchanges lagging behind may face:

• Licensing delays
• Increased audits
• Potential enforcement actions

Jurisdictional Risk

Operating in weakly regulated regions may no longer offer protection. Increasing cross-border cooperation means enforcement actions could extend across jurisdictions.

Recent enforcement patterns include:

• SEC actions against unregistered exchanges
• FCA penalties for non-compliant marketing
• MAS warnings on misleading crypto promotions

For Stablecoin Issuers

Operational and Governance Reforms

Issuers must enhance:

• Governance
• Reserve transparency
• Risk-management structures
• Audit and reporting standards

Given past collapses, regulators will scrutinize backing models, redemption processes, and operational resilience.

For Virtual Asset Service Providers (VASPs)

Market Reputation and Legal Exposure

VASPs must ensure alignment with:

• FSB expectations
• FATF standards
• Local licensing rules

What is the FATF Travel Rule?

It requires VASPs to share sender and receiver information during crypto transactions, similar to bank wire-transfer requirements. Its purpose is to reduce money laundering and terrorist financing risks.

Failure to comply increases legal and reputational exposure.

Legal Perspective: How CryptoVerse Lawyers Supports Compliance

At CryptoVerse Lawyers, we assist businesses in adapting to evolving global crypto regulations with precision and foresight.
Our expertise spans multiple jurisdictions and focuses on mitigating the risks highlighted by the FSB report.

Our Core Services Include:

• Regulatory Structuring: Advising clients on compliant business models for exchanges, custodians, and stablecoin projects across major jurisdictions.
• Cross-Border Compliance: Helping VASPs understand and align with overlapping international requirements (FSB, FATF, IOSCO, and national regulators).
• Legal Risk Assessment: Evaluating potential exposure to regulatory arbitrage and preparing documentation that reflects global best practices.
• Policy & Licensing Support: Preparing submissions for license applications, legal opinions, and policy engagements with regulators.

Why This Matters Now

While the FSB acknowledges that crypto-asset risks to global financial stability remain limited for now, it warns that uncoordinated regulation could magnify systemic vulnerabilities.
For digital-asset firms and legal professionals, this signals an inflection point – regulatory convergence is no longer optional; it’s imminent.

Proactive compliance, transparent governance, and informed legal strategy will be essential to operate sustainably within the evolving international framework.

Conclusion

The FSB’s 2025 assessment is more than a policy document – it’s a global signal that crypto regulation is entering a new phase of coordination and accountability.
As the world’s major economies move toward harmonised frameworks, firms that act early will be better positioned to thrive in a regulated digital-asset future.

At CryptoVerse Lawyers, we help clients anticipate and respond to these regulatory shifts with confidence, clarity, and legal precision.
Our commitment is to safeguard your digital-asset ventures through globally compliant legal strategies.

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