FSB report sets out framework to monitor crypto-asset markets

Financial Stability

The FSB takes the view that crypto-assets do not pose a material risk to global financial stability at this time, but supports vigilant monitoring in light of the speed of developments and data gaps. The FSB has developed a framework, in collaboration with Committee on Payments and Market Infrastructures (CPMI), to monitor the financial stability implications of developments in crypto-asset markets. The report sets out the metrics that the FSB will use to monitor crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system.

The International Organisation of Securities Commissions (IOSCO) have also concluded that crypto-assets do not at present pose global financial stability risks.

Regulatory capital

The regulatory capital implications for credit institutions holding crypto-assets is currently unclear. At the time of writing, the Basel Committee of Banking Supervisors (BCBS) is conducting an initial stocktake on the materiality of bank’s direct and indirect exposures to crypto-assets and how they are treated in prudential rules. This may be followed by a more structured data collection exercise. Once complete, the BCBS will consider whether to clarify the prudential treatment of crypto-assets across the set of risk categories, including credit, market and operational risk, in Basel III.

Consumer and investor protection

In January 2018, IOSCO issued a general communication to the public warning of the risks of ICOs. Since then, it has agreed to develop a Support Framework to provide a resource for IOSCO members to identify regulatory risks arising from ICOs. IOSCO points to issues such as whether a traded crypto-asset is a security, commodity or some other financial product, and whether crypto-currency exchanges are failing to comply with the laws applicable to exchanges. IOSCO concludes crypto-assets raise significant concerns, including consumer and investor protection, market integrity and money laundering/terrorism financing.

IOSCO’s Committee on Secondary Markets may also consider whether IOSCO’s principles for secondary and other markets should apply to crypto-asset platforms. The Committee has identified a number of key issues it may investigate, including transparency, custody and settlement, trading and cyber security and systems integrity.

Where crypto-assets are used as a payment mechanism, IOSCO will also be looking to work more closely with the BCBS and CPMI.

Payments, clearing and settlement

The CPMI has the mandate to promote the safety and efficiency of payment, clearing and settlement arrangements, and has agreed to monitor closely developments in digital currencies and distributed ledger. In April 2018, the CPMI and IOSCO examined the Principles for Financial Market Infrastructures and did not identify any critical issues or gaps for distributed ledger technology-based financial market infrastructures. The CPMI regards the use of totally decentralised crypto-currency as unsafe money but states that a central bank digital currency would be an entry into “unchartered territory”. A survey of central banks on these issues is planned for later this year.

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