This is the
Financial Stability Board’s (FSB’s) updated assessment of risks to financial stability from crypto-assets, published today.
The report examines developments and associated vulnerabilities
relating to three segments of crypto-asset markets: unbacked
crypto-assets (such as Bitcoin); stablecoins; and decentralised finance
(DeFi) and crypto-asset trading platforms. It notes the close, complex
and constantly evolving interrelationship between these three segments,
which need to be considered holistically when assessing related
financial stability risks.
The report highlights a number of vulnerabilities associated with
crypto-asset markets. These include increasing linkages between
crypto-asset markets and the regulated financial system; liquidity
mismatch, credit and operational risks that make stablecoins susceptible
to sudden and disruptive runs on their reserves, with the potential to
spill over to short-term funding markets; the increased use of leverage
in investment strategies; concentration risk of trading platforms; and
the opacity and lack of regulatory oversight of the sector. The report
also notes wider public policy concerns related to crypto-assets, such
as low levels of investor and consumer understanding of crypto-assets,
money laundering, cyber-crime and ransomware.
The report notes that financial stability risks could escalate
rapidly and calls for timely and pre-emptive evaluation of possible
policy responses. Currently, crypto-assets remain a small portion of
overall global financial system assets and direct connections between
crypto-assets and systemically important financial institutions and core
financial markets, while growing rapidly, also remain limited.
Nevertheless, the rapid evolution and international nature of
crypto-asset markets raise the potential for regulatory gaps,
fragmentation or arbitrage.
The FSB will continue to monitor developments and risks in
crypto-asset markets. It will explore potential regulatory and
supervisory implications of unbacked crypto-assets, including the
actions FSB jurisdictions have taken, or plan to take, to address
associated financial stability threats. The FSB will also continue to
monitor and share information on regulatory and supervisory approaches
to ensure effective implementation of its high-level recommendations for the regulation, supervision and oversight of so-called “global stablecoin” arrangements.
Notes to editors
In July 2018, the FSB published a monitoring framework
which set out the transmission channels that the FSB would use to
monitor the financial stability implications of crypto-asset markets as
part of its ongoing assessment of vulnerabilities in the financial
system. At that time, the FSB assessed that crypto-assets did not pose a
material risk to global financial stability, but noted the need for
vigilant monitoring in light of the speed of market developments.
In October 2020, the FSB published high-level recommendations
for the effective regulation, supervision and oversight of “global
stablecoin” arrangements. The recommendations were developed to support
the implementation of a key building block of its roadmap to enhance cross-border payments. In October 2021, the FSB published a progress report which
found that, overall, the implementation of the FSB high-level
recommendations across jurisdictions is still at an early stage. The FSB
will undertake a review of its recommendations in 2023, which will
identify how any gaps could be addressed by existing frameworks and will
lead to the update of the FSB’s recommendations if needed.
The FSB coordinates at the international level the work
of national financial authorities and international standard-setting
bodies and develops and promotes the implementation of effective
regulatory, supervisory, and other financial sector policies in the
interest of financial stability. It brings together national authorities
responsible for financial stability in 24 countries and jurisdictions,
international financial institutions, sector-specific international
groupings of regulators and supervisors, and committees of central bank
experts. The FSB also conducts outreach with approximately 70 other
jurisdictions through its six Regional Consultative Groups.
The FSB is chaired by Klaas Knot, President of De
Nederlandsche Bank. The FSB Secretariat is located in Basel,
Switzerland, and hosted by the Bank for International Settlements.