- Knot stated that rapid evolution and international nature of crypto markets raise the potential for regulatory gaps, fragmentation, or arbitrage.
- The Chair noted that FSB’s primary goal is to establish comprehensive rules on the market, especially on “unbacked” cryptocurrencies.
- FSB had earlier also expressed concerns about the threats posed by the unregulated crypto sector
The Chairman of the Financial Stability Board (FSB), Klaas Knot expressed concern about the unregulated cryptocurrency sector hampering financial stability at the annual meeting of the International Swaps and Derivatives Association in Madrid.
While he acknowledged the rapid development of the crypto asset class in recent years, he stated that this progress could pose a severe threat to the global monetary ecosystem: “The bottom line of our assessment is that crypto-assets are fast evolving and could soon threaten global financial stability. The rapid evolution and international nature of these markets also raise the potential for regulatory gaps, fragmentation, or arbitrage.”
He also noted that FSB is leaning on soon formulating global regulations to cover crypto assets.” The FSB is well placed to take a leading role in the design of a coherent global regulatory framework for crypto assets,” says Knot. Commenting on how FSB is treating the current financial stability challenges, the FSB chair said, “We have now stepped up our surveillance of market developments, with a focus on the resilience of critical nodes in the global financial system. The other response is through an in-depth analysis and assessment of specific potential vulnerabilities, with a particular focus on commodity markets, margining, and leverage”. Knot believed the digital asset market is expanding at a fast pace, while some of the tokens are however employed by criminals in illicit activities.
Talking about FSB’s approach to tackling cyber risks, Knot stated that FSB is currently working to promote greater convergence in three cyber incident reporting to help support ongoing enhancements to cyber response and recovery capabilities among financial intermediaries. In his speech, he further stated that one of FSB’s primary goals will be to establish comprehensive rules on the market, primarily on “unbacked” cryptocurrencies and stablecoins.
Knot, talking about the crypto regulation plans, stated that FSB would first take into consideration the existing laws that apply to crypto. “This will provide a basis for additional work to address risks not covered by these pre-existing standards. Crypto asset markets are now not operating in a lawless environment or a barren regulatory landscape”, said Knot.
This is not the first time FSB had expressed its desire to regulate unbacked crypto.FSB earlier this year warned about the risk a growing and largely unregulated sector could pose for investor confidence and financial crime. It is now joining international standard-setters, including OECD, the Financial Action Task Force which are respectively responsible for mainly developing anti-money laundering and tax rules for the crypto sector. European Union has also called for an international framework for the crypto sector. The Switzerland-based FSB is an International Body that makes recommendations about the global financial system and reports to the Group of 20 of the world’s largest economies.
Klaas Knot (Horacio Villalobos/Corbis/Getty Images)