17 May 2019

ECB: Working paper: Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures

This paper proposes a characterisation of crypto-assets in the absence of a common definition and as a basis for the consistent analysis of this phenomenon. It also analyses recent developments in the crypto-assets market and unfolding links with financial markets and the economy.

In conclusion, in the present market conditions, crypto-assets risks/implications for financial stability, monetary policy, and payments and market infrastructures are limited and/or manageable within the current framework. Even at their peak in early 2018 the outstanding value of crypto-assets was too small to give rise to concerns for the EU financial system and the economy. The regulatory framework for FMIs allows risks arising from crypto-assets specific features to be managed and effectively constrains their use. With regard to supervised institutions, while the CRR is unsuited to deal with crypto-assets risks, deducting these items from CET1 would overcome this issue; otherwise Pillar 2 could be leveraged.

The current assessment does not prevent the ECB from analysing the resilience of the financial system to possible future developments, and from identifying gaps to be filled. Crypto-assets market developments are dynamic and links to the financial sector and the economy may increase in the future. Greater direct and/or indirect exposures to crypto-assets may result from many factors, from market developments to unintended “legitimising” effects of clarifying the application of standards (e.g. accounting standards) or regulating crypto-asset activities. Depending on how they are regulated, crypto-assets may more easily enter the FMI environment, and deteriorate the FMI risk profile.

It is therefore important that the ECB continue to monitor the crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with other relevant authorities.

Financial institutions investing directly or indirectly in crypto-assets should have in place relevant governance arrangements, also in line with the licensing criteria, and commensurate to the materiality of investments in crypto-assets and/or crypto-assets-related activities. Any risks relating to crypto-assets not covered by Pillar 1 (i.e. should CET1 deductions not apply to crypto-assets) should be addressed via supervisory assessment.

With regard to market infrastructures, the ECB is in a position to impose ring-fencing segregation for the FMIs it owns and controls, subject to risk considerations. FMI oversight has an important role in ensuring that evolution of business models in crypto-assets does not result in circumventing the regulatory framework or compromising its effectiveness, including by urging from FMIs stricter risk management standards as appropriate.

Working paper

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