Worldwide Regulators to Evaluate the Necessity of Additional Cryptocurrency Safeguards

London: 28 November 2023 (TraderMade): The Financial Stability Board (FSB), an international coalition of regulators, central banks, and treasury officials from G20 economies, has signaled the potential necessity for additional measures to prevent disruptions at complex crypto firms, such as FTX, from destabilizing the broader financial system.

The FSB's statement on Tuesday underscored the risks highlighted by the turmoil in crypto markets last year when FTX faced a collapse. The incident shed light on how "multifunction" crypto firms engaging in trading and other activities can magnify vulnerabilities akin to those in traditional finance. These vulnerabilities encompass issues like leverage, liquidity mismatches, and technological and operational vulnerabilities, as outlined in a report by the FSB.

The report emphasized that these vulnerabilities are exacerbated by a lack of reliable controls, operational transparency, insufficient disclosures, and conflicts of interest within the crypto sector.

While the FSB acknowledged that the current threat to broader financial stability and the economy is limited, it urged regulators to assess whether the high-level recommendations for supervising crypto activities, published earlier this year by the FSB and the International Organization of Securities Commissions (IOSCO), sufficiently mitigate the risks of crypto-related disruptions permeating the financial system.

The report stressed the potential need for further work to enhance cross-border cooperation, improve information sharing, and address identified information gaps in the crypto sector. Global regulators are keen on ensuring that the evolving landscape of digital assets is effectively monitored and controlled to prevent systemic risks.