In a first, G20 watchdog to propose 'robust' global crypto rules in Oct
Premium- The FSB has till now limited itself to monitoring the cryptocurrency sector, saying it did not pose a systemic risk
Amid a recent turmoil in markets, the Financial Stability Board on Monday said that it would propose "robust" global rules for cryptocurrencies in October. The FSB said the current turmoil has highlighted the need to regulate the "speculative" sector.
The FSB has till now limited itself to monitoring the cryptocurrency sector, saying it did not pose a systemic risk.
But the recent turmoil in crypto markets has highlighted their volatility, structural vulnerabilities and increasing links to the wider financial system, the FSB stated.
"The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem," the FSB, a body of regulators, treasury officials and central bankers from G20 countries, said in a statement.
The FSB said that it will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets.
The FSB has no law-making powers but its members commit to applying its regulatory principles in their own jurisdictions.
The watchdog is lagging the European Union, a leading member of the FSB, which agreed comprehensive new rules for the crypto market this month.
The FSB said that cryptocurrency assets are predominantly used for "speculative purposes" but don't operate in a "regulation free space" and must comply with relevant existing rules.
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Several nations require cryptocurrency firms to have anti-money laundering controls.
"FSB members are committed to using the enforcement powers within the legal framework in their jurisdiction to promote compliance and act against violations," the FSB added.
Meanwhile, Federal Reserve Vice Chair Lael Brainard has said that the recent turmoil in the crypto market does not yet pose a “systemic risk" to the broader financial system, but authorities need to close regulatory gaps to protect consumers and ensure stability.
Fed officials are closely monitoring the turbulence in crypto assets, which has exposed vulnerabilities related to leverage, liquidity and settlement, Brainard told a Bank of England conference Friday, according to her prepared remarks.
“Despite significant investor losses, the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk," Brainard further stated.
“This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained."
The crypto universe continues to be plagued by wild swings, with the price of Bitcoin dropping by as much as 75% from a record high over the past seven months, the Fed official said.
Some stablecoins, or digital assets pegged to a fiat currency, have faced significant outflows and are vulnerable to runs, she said.
Brainard called attention to the spillover risks of stablecoins, which are regularly used as collateral for transactions. A central bank digital currency, which would be issued and backed by the government, could provide a safe alternative and “enhance stability," she said.