Data privacy remains one of the main legal obstacles to cross-border cooperation in regulating cryptocurrencies such as Bitcoin and stablecoins, according to the G20’s risk watchdog.
The Financial Stability Board (FSB), a global regulatory body backed by the Bank for International Settlements (BIS), has pointed out ongoing inconsistencies in how governments oversee the crypto market worldwide.
“These inconsistencies lead to challenges such as regulatory arbitrage, data gaps, and market fragmentation,” the FSB noted in a 107-page peer review report released on Thursday.
Among the major hurdles to international coordination, the FSB cited fragmented oversight within jurisdictions, differing regulatory approaches, and—most prominently—privacy laws.
FSB urges action on privacy barriers
The watchdog said that data confidentiality concerns often hinder efforts to identify systemic risks and effectively supervise cross-border crypto activities.
“Secrecy or data privacy laws may pose significant barriers to cooperation,” the report stated, noting that in some regions, local firms are prohibited from sharing data with foreign regulators.
Additionally, the FSB observed that some market participants are reluctant to disclose sensitive information due to fears of confidentiality breaches or uncertainty about reciprocal data protection.
“These concerns lead to delays in addressing cooperation requests where they are made and, in some cases, may prohibit or discourage participation in cooperation arrangements altogether,” the FSB wrote, adding:
“Addressing these challenges is likely to foster more effective and efficient cross-border cooperation in the rapidly evolving crypto-asset landscape.”
With the FSB identifying data privacy as a major blind spot in achieving effective global crypto regulation, it remains unclear what solutions the authority may put forward.
Data providers lack reliability and consistency
While the FSB views data privacy as a significant hurdle in managing financial stability risks, much of the crypto community regards it as a fundamental human right. Although this doesn’t render crypto transactions fully untraceable, the watchdog emphasized that data from crypto service providers often lacks accuracy, consistency, and completeness.
“Regulatory data sources remain limited, forcing authorities to depend heavily on commercial data providers, surveys, and other fragmented or incomplete datasets,” the FSB noted in its report.
The board also pointed out that similar shortcomings in crypto data quality were identified nearly four years ago, suggesting that progress in improving data reliability has been minimal.
