On 16 July 2018, the Financial Stability Board (FSB) published a report on the work undertaken by the FSB as well as other standard-setting bodies on crypto-assets. The G20 Ministers of Finance and Central Bank Governors called on the FSB to produce this report following the G20 meeting in Buenos Aires in March 2018.
Work by the FSB
The FSB agrees that crypto-assets do not currently pose a material risk to global financial stability, but vigilant monitoring was advised. Working with the Committee on Payments and Market Infrastructures (CPMI), the FSB developed a framework to monitor the financial stability implications of crypto-assets markets and particularly to identify potential metrics. The framework looks at the key risks within crypto-assets and potential transmission channels to financial stability risks. The FSB cautions about the variable levels of quality of the underlying data used and warns that metrics on prices, trading volumes and volatility could be manipulated by a number of generally prohibited techniques. Nevertheless, the FSB believes that its proposed metrics provide “a useful picture of crypto-asset markets and the financial stability risks they may present”.
Update from CPMI on its work
In pursuit of its mandate to promote “the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy”, the CPMI has paid particular attention to innovations in payments. The CPMI notes that innovations may improve efficiency at the cost of safety and that represents an important challenge for central banks. According to the CPMI, the “first generation” of decentralised private digital tokens “make for unsafe money”.
Going forward, the CPMI will reach out to central banks urging them to proceed with caution on central bank digital currency (CBDCs); monitor CBDCs and private digital tokens used for payments, including the development of the “second generation cryptocurrencies”; and analyse the efficiency and safety considerations for wholesale digital currencies.
Update from IOSCO on its work
In November 2017, the International Organisation of Securities Commissions (IOSCO) issued a statement to its members on the risks of initial coin offerings (ICOs), and in January 2018 it issued a communication to the general public highlighting its concerns in this area. IOSCO notes the growth of crypto-asset platforms, but states that they may be failing to comply with the laws applicable to exchanges. IOSCO does not consider crypto-asset platforms to currently pose global financial stability risks, but the report suggests that they raise other significant concerns in relation to consumer and investor protection, market integrity, and money laundering and terrorist financing. IOSCO’s Committee on Secondary Markets has begun to examine internet-based platforms, including crypto-asset platforms: focusing on transparency, custody and settlement, trading, cyber security and systems integrity.
Update from BCBS on its work
The BCBS is pursuing a number of policy and supervisory initiatives on crypto-assets relating to its mandate to strengthen the regulation, supervision and practices of banks worldwide, with the purpose of enhancing financial stability. To that end, BCBS is conducting a stocktake on the materiality of banks’ direct and indirect exposures to crypto-assets which may be followed by a structured data collection exercise on crypto-assets as part of its half-yearly monitoring exercise. The BCBS is also conducting a stocktake of how its members currently treat exposures to crypto-assets domestically and will consider whether to formally clarify the prudential treatment of crypto-assets. The BCBS is continuing to monitor FinTech developments.
In its press release, the FSB said that the Financial Action Task Force will report separately to the G20 on its work concerning the money laundering and terrorist financing risks relating to crypto-assets.