Financial Stability Board Introduces a New Framework to Monitor Crypto Assets

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by Sofiko Abeslamidze · 3 min read
Financial Stability Board Introduces a New Framework to Monitor Crypto Assets
Photo: Financial Stability Board

Global regulators have published a framework for “vigilantly” monitoring risks from crypto assets, even though they don’t pose a major risk to financial stability for now.

It seems that in 2018, more than 9 years after the first mention of distributed ledger, digital industry is finally starting to become mainstream. With over 50 million people somehow involved into the crypto sphere, no wonder, cryptocurrency regulations are among the hottest topics on agenda of the international summits.

A couple of months ago, Coinspeaker reported a positive feedback cryptocurrencies received from the chairman of the Financial Stability Board (FSB), Mark Carney, who during his speech at 2018 G20 Buenos Aires summit said that crypto-assets did not pose risks to global financial stability at that time since they were contributing to a very small part of financial sector.

Notably the FSB’s delay in developing of a regulatory body has immediately triggered an optimistic upturn in the market, whereas heavily correcting Bitcoin and other cryptocurrencies moved upwards.

However, times have changed and today FSB has introduced a framework to monitor the implications of crypto-assets on financial stability. The framework was presented as a part of the report to the G20 on the work of the FSB and standard-setting bodies submitted to the member nations’ financial ministers and central bank governors.

The report sets out the metrics that the FSB will use to monitor crypto-asset markets in order to spot any financial stability risks early enough to take action. It encompasses transmission channels, size and growth of crypto-asset markets, as well as metrics on trading volumes, pricing, clearing and margining for crypto-asset derivatives. Metrics on financial institution exposures to crypto-asset markets will be included to the extent that they become available, according to the official release.

The FSB framework also includes trading volumes, pricing, clearing and margining for derivatives linked to crypto assets, such as the bitcoin futures launched by CME Group (CME.O) last December.

Nevertheless, the FSB cautioned that data is still patchy at times in a rapidly developing market that can be fragmented and opaque. It would assess whether the framework will need extra data at a later stage.

Commenting on the reasons behind the framework, the FSB said:

“Crypto assets in general and crypto asset trading platforms do not pose global financial stability risks, but they raise other significant concerns, including consumer and investor protection, market integrity, money laundering and terrorism financing.”

The report reveals that besides the FSB its affiliate, the Basel Committee, which writes bank capital standards, is also conducting an “initial stocktake” of banks’ exposures to crypto assets in attempts to assess the potential impact of the technology.

The committee is also looking at whether regulators are forcing lenders to set aside capital against holdings of crypto assets, and considering whether to rewrite its rules to explicitly require such holdings to be covered.

In the meanwhile, Bitcoin alongside the other major cryptos that for a while have been taking a knock in price are going to be appalled by the prospect of an upcoming regulatory framework. Yet the long-term consequences of introduced framework remain to be seen in the near future.

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