What has happened?
The Financial Stability Board (FSB), which co-ordinates financial regulation among G20 economies, has developed a framework for monitoring the financial stability implications of crypto-assets markets.
What does this mean?
The FSB framework, which was developed in collaboration with the Committee on Payments and Market Infrastructures (CPMI), sets out the metrics that the FSB will use to monitor developments in crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system.
The framework was published as part of a report on the work undertaken by the FSB and other standard-setting bodies on crypto-assets and has been submitted to the G20 finance ministers and central bank governors for their meeting on 21-22 July in Buenos Aires.
In a press release, the FSB stated that it believes that "crypto-assets do not pose a material risk to global financial stability at this time".
However, the speed at which the cryptocurrency market is developing means that "vigilant monitoring" is necessary.
"Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall," the report states.
According to the report, the metrics the FSB will focus on include market capitalisation (size and growth rate), price levels and volatility.
"The use of leverage, and financial institution exposures to crypto-asset markets will also be important metrics of transmission of crypto-asset risks to the broader financial system."
The framework also includes metrics on trading volumes, pricing, clearing and margining for crypto-asset derivatives.
The FSB indicated that metrics on exposures will become part of the framework to the extent that they become available.
Data from public sources will be used when available but the FSB said that "supervisory data pertaining to crypto-assets" can be more reliable and could complement public data.
The report also describes the work undertaken by other standard-setting bodies in their efforts to monitor specific areas of the cryptocurrency market.
For example, the CPMI has worked on applications of distributed ledger technology, and is conducting outreach, monitoring, and analysis of payment innovations.
For its part, the International Organization of Securities Commissions, a global regulatory body comprising securities regulators, has developed an initial coin offering (ICO) consultation network to discuss experiences and concerns about ICOs and is developing a framework to help its members address issues stemming from ICOs that could affect investor protection.
Meanwhile, the Basel Committee on Banking Supervision is assessing the materiality of banks’ direct and indirect exposures to crypto-assets, clarifying the prudential treatment of such exposures, and monitoring developments related to crypto-assets for banks and supervisors.
The report is the result of the meeting of the G20 finance ministers and central bank governors in March this year, at which there were calls for the FSB to report on its work and that of other standard-setting bodies on crypto-assets.
The FSB is chaired by Mark Carney, the Governor of the Bank of England. Its Secretariat is located in Switzerland, and hosted by the Bank for International Settlements.
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