Financial Stability Board calls for Increased Crypto Regulations, Cites Global financial Risk

The Financial Stability Board (FSB), an advisory to the G20 nations, calls for policymakers to quickly create rules surrounding the digital asset market. Last Wednesday, the FSB warned policymakers that these assets could pose a risk to global financial stability.

“There is clearly a higher degree of urgency,” said Klaas Knot, the Dutch central bank governor who became chair of the Basel-based FSB in December.

“Now what we are seeing is . . . not only has there been a rapid increase in scale, but also, the touchpoints with traditional financial intermediation have increased and therefore it needs more focus from the FSB,” he added.

The market value for crypto assets surged from $350 billion in 2020 to over $3 trillion last year. However, due to substantial drops in coin prices, the current value is just over $2 trillion.

Furthermore, the FSB states that it is difficult to assess some areas of the crypto market as there are “significant data gaps.”

“There’s a strong push by all jurisdictions that feel that these risks are rapidly evolving,” Knot said. “If you have a server, you can take it under your arm and put it anywhere in the world and start issuing these assets, right?”

In their publication last Wednesday, the FSB warned that the collapse of a big cryptocurrency could have a domino effect. They pose that if a large coin fails, there would be a decline in other asset classes.

“A disorderly run due to a loss in confidence on a [global stablecoin] that has reached significant scale could lead to disruptions in the real economy and spillovers into the broader financial system,” the FSB said.

“Regulation is always a reactive business because innovation takes place in the industry,” said Knot. “We will always be in the second coach, but I think the distance between the first and the second coach has become much smaller over time. There’s definitely more urgency now.”

Source: Financial Times