Crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international levels, according to a statement issued Monday by the international body of financial industry regulators, which includes the Federal Reserve.
The statement from the Financial Stability Board (FSB) said crypto-assets, “including so-called stablecoins,” are fast evolving. It noted that recent turmoil in crypto-asset markets highlights the instruments’ intrinsic volatility, structural vulnerabilities, and the issue of their increasing interconnectedness with the traditional financial system.
“The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallization of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem,” the FSB statement reads. “It may have spill-over effects on important parts of traditional finance such as short-term funding markets.”
The FSB asserted that an effective regulatory framework must ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking into account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.
The board listed several key points for regulation:
- Crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level.
- Crypto-asset service providers must at all times ensure compliance with existing legal obligations in the jurisdictions in which they operate.
- This year’s turmoil in crypto-asset markets highlights the importance of progressing ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets, including so-called stablecoins.
- Stablecoins should be captured by robust regulations and supervision of relevant authorities if they are to be adopted as a widely used means of payment or otherwise play an important role in the financial system.
The statement also notes that the FSB is “working to ensure that crypto-assets are subject to robust regulation and supervision” and that the board will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets.