Crypto Safeguards: In a recent announcement, the Global Financial Stability Board (FSB) has underscored the necessity for potential additional measures to avert disruptions in crypto firms, particularly exemplified by incidents like the collapse of FTX, which raised concerns about destabilizing the broader financial system.
The FSB, comprising regulators, central banks, and treasury officials from G20 economies, emphasized that the upheaval caused by the collapse of FTX highlighted the amplified vulnerabilities associated with “multifunction” crypto companies. These entities, engaging in both trading and other activities, are susceptible to challenges mirroring those observed in traditional finance, encompassing issues such as leverage, liquidity mismatches, and technological shortcomings, as outlined in the FSB’s recent report.
The report underscores that these vulnerabilities are exacerbated by a lack of effective controls, operational transparency, inadequate disclosures, and potential conflicts of interest within the crypto sector.
While the evidence currently suggests a limited threat to broader financial stability and the economy, the FSB urges regulators to evaluate whether the high-level recommendations published earlier this year by FSB and IOSCO (the global securities watchdog) are sufficient to mitigate the escalating risks posed by crypto activities.
The FSB report concludes by indicating that additional efforts may be necessary to strengthen cross-border cooperation, improve information sharing, and address identified information gaps. As the crypto landscape evolves, regulatory bodies remain vigilant in safeguarding global financial stability.
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