Category Archives: Financial Stability Board

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G20 Crypto Report: Preserve Benefits of Innovation, Contain Risk

The G20 Financial Stability Board (FSB) is rarely upbeat when it comes to cryptocurrency and its latest report won’t disappoint, although there are indications that the regulatory board is beginning to accept that crypto is here to stay.

It states that its observations are primarily based on a “monitoring framework… predominantly based on public data” and it would be interesting to uncover exactly where this data is gathered.

The usual risks to financial stability in that crypto lacks sovereign currency “attributes” and concerns about digital currencies’ price volatility are all to be found in the report, with little reference to their benefits. It also refers to a lack of regulation due to the range of jurisdictions in which cryptocurrency exchanges operate.

The FSB is formed by an amalgamation of 68 finance departments and central banks of the G20 and chaired by Bank of England’s head Mark Varney who has expressed his concerns about cryptocurrency on more than one occasion.

The G20 financial watchdog noted in its July report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

This latest report has upgraded some of these concerns from early in the year calling for “vigilant monitoring” suggesting that institutionalized cryptocurrency may erode confidence in financial institutions; a clear concern being shown that banks fear an alternative option for their customers. This may not be imminent, but a likelihood that this becomes the status quo in future years is bound to concern major banking institutions around the globe, as represented by the G20 body.

However, it appears there is some consensus from within the group about the value of innovation, if not the benefits of crypto, although this may be limited to the respect currently being shown for the rising swathe of DLT in the fintech space and elsewhere. The report stated:

“FSB members have to date taken a wide variety of domestic supervisory, regulatory, and enforcement actions related to crypto-assets. These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity.”

The report also goes on to refer to the widespread use of crypto as a payment system but plays down the level of its impact in the financial and commercial sector by using the word “some”, perhaps unaware of crypto’s growing stature as a payment system:

“Importantly, crypto-assets are neither backed by any government or other authority nor are they legal tender in any jurisdiction. However, some private enterprises and some public sector entities have chosen to accept some crypto-assets as payment.”

 

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Global Regulators Consider Capital Requirements on Bank Crypto Holdings

Cryptocurrency assets held by banks may soon become subject to new capital requirements enforced by global financial regulators, as they struggle to fit digital currencies into conventional asset ordinance.

In a report published Monday by the Financial Stability Board (FSB), the Basel Committee on Banking Supervision outlined an agenda of promoting financial stability through strengthening regulation and supervision of banks worldwide. The report was aimed at its 20 members and proposed capital requirements for crypto assets held by banks.

The regulations offered in the review would require capital lenders to adjust their services to the cryptocurrency market, namely protecting themselves against market volatility and other accompanying threats. While these regulations would bring digital currency assets in line with existing rules for established forms such as mortgages, they could push up financing costs for firms.

The Basel Committee’s members include the US Federal Reserve, as well as the European Central Bank. An ongoing study by the committee is researching how each member currently treats domestic cryptocurrency asset exposure. The FSB is reportedly waiting for the results of this inquiry before clarifying the applicability, or details of the new capital requirements.

The FSB’s position on crypto

While the FSB has said it does not believe digital currency assets present a threat to current financial order, it has continued to study and develop ways of surveying the market. Issues including pump and dump schemes, manipulation, access to price information, and volatility have been cited by the FSB as necessary to amend.

Bank of England Governor Mark Carney chairs the FSB, who is himself a vocal critic of cryptocurrencies. In March, he called for an end to what he described as the ”anarchy” surrounding the industry, saying the time had come for digital assets to face the same regulations as the rest of the financial system.

This sentiment expressed falls along a very similar line of the proposed standardization of regulating cryptocurrency assets the way traditional assets are.

 

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