FSB Report Urges Stricter Regulations for the Cryptocurrency Industry to Prevent Future Crises
Summary:
The Financial Stability Board (FSB) called for more robust regulations on the cryptocurrency sector in a report published on November 28. It pointed to vulnerabilities in mult function crypto-asset intermediaries (MCIs), which mix trading and other activities. The FSB suggests that these MCIs may intensify flaws such as those revealed during the FTX cryptocurrency exchange collapse. The international watchdog urges regulators to asses if current recommendations are sufficient to prevent crypto-related risks in the wider financial landscape and proposed strengthening cross-border cooperation and information sharing.
On November 28, the Financial Stability Board (FSB), the international entity overseeing the financial sector, published a report stating that the cryptocurrency sector could require more stringent regulation to avert a crisis comparable to the FTX debacle. The FSB's report highlighted the problems exposed in multifunction crypto-asset intermediaries (MCI) - platforms that offer trading and related functions - following the meltdown of the FTX cryptocurrency exchange. The FSB detailed that the susceptibilities of MCIs are not dissimilar to those of ordinary finance, including vulnerabilities in technology, leverage, operational elements, liquidity incongruity, and intercommunications. However, it insisted that the specific combination of functions typical in MCIs could exacerbate these weaknesses, especially when MCIs participate in proprietary trading, crypto-asset lending and borrowing, and market making on their platforms. According to the FSB, these issues are further escalated by the clear lack of control measures and transparency. It added that MCIs’ central role in the crypto-asset ecosystem and their extensive market influence also bring additional vulnerabilities. The financial watchdog recommended that regulatory bodies contemplate whether recommendations previously issued by the FSB and the International Organization of Securities Commissions (IOSCO) are sufficient to prevent the amplification of crypto-related risks in the broader financial space. It suggested more work might be necessary to boost cross-border collaborations and information dissemination and to address the knowledge voids identified in the report. In July, the FSB published its global crypto framework recommendations, and in collaboration with the International Monetary Fund (IMF), issued shared policy proposals related to crypto-assets in response to a request by the G20 in September. These recommendations were accepted as a regulatory roadmap by the G20 a few weeks later.
Published At
11/28/2023 1:18:10 PM
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