FSB report sets out framework to monitor crypto-asset markets

Although the FSB believes that crypto assets do not pose a material risk to global financial stability at this time, it recognizes the need to keep tabs on the fast-growing market

By: James Langton
July 16, 2018 November 13, 2019
11:30

A report from the Financial Stability (FSB) report published on Monday details the development of new tools for monitoring the implications for financial stability stemming from crypto assets.

The report, which is to be delivered to the G20 finance ministers and central bank governors at their meeting in Buenos Aires on July 21-22, sets out the metrics that the FSB will use to monitor possible systemic risks in crypto-asset markets.

Although crypto-assets “do not pose a material risk to global financial stability at this time,” the FSB says in a news release, these markets are developing quickly and require vigilance to ensure that policymakers are aware of any nascent risks.

“Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall. The use of leverage, and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system,” the FSB says.

The framework also covers trading volumes, pricing, clearing and margining for crypto derivatives.

Additionally, the report details the work being done on crypto-currency markets by other international standard-setting bodies, such as the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision.

For example, IOSCO has established a network for global regulators to discuss their experiences with initial coin offerings (ICOs) and is developing its own framework to help regulators deal with domestic and cross-border issues stemming from ICOs that could impact investor protection.

The Basel Committee is assessing the materiality of banks’ exposures to crypto-assets, and clarifying the capital treatment of these exposures; and, the CPMI, which helped the FSB develop its monitoring framework, is examining distributed ledger technology.

The Financial Action Task Force (FATF) will also be reporting to the G20 on the money laundering and terrorist financing risks relating to crypto assets, the FSB says.