A Global Approach Needed for Regulating Crypto Asset Intermediaries, Says Financial Stability Board
The Financial Stability Board (FSB), a multinational financial regulator, has emphasized the need for global efforts to regulate the crypto space. In a recent report, the FSB highlights the role of “multifunction crypto-asset intermediaries” (MCIs) in magnifying vulnerabilities within the crypto market due to their interconnectedness with digital assets.
The FSB points out that the collapse of FTX and the crypto market turmoil in May/June 2022 illustrate the critical role of MCIs and their potential to exacerbate structural vulnerabilities such as leverage and liquidity mismatch. Additionally, MCIs serve as entry points for both retail and institutional investors into the crypto market, making them potential channels for spillovers into the traditional financial system.
Enhancing Cross-Border Cooperation and Information Sharing
The FSB recommends that governments enhance cross-border cooperation and information sharing to assist regulators and authorities in overseeing MCIs. It highlights that these intermediaries are often incorporated in crypto-friendly jurisdictions but operate across multiple jurisdictions, which amplifies their vulnerabilities and brings the risk of regulatory arbitrage.
The FSB also emphasizes the importance of addressing these concerns at a global level rather than solely at the jurisdiction-specific level of individual MCIs. This approach aims to prevent leading MCIs from relocating to jurisdictions with more relaxed regulations to continue their operations on a global scale.
Hot Take: Global Cooperation Essential for Regulating Crypto Asset Intermediaries
The Financial Stability Board’s report underscores the need for a coordinated international effort to regulate crypto asset intermediaries. The interconnected nature of these intermediaries and their central role in the crypto market can significantly impact its stability. By enhancing cross-border cooperation and information sharing, regulators can better oversee MCIs and mitigate potential risks, such as leverage and liquidity mismatch. Additionally, addressing these concerns at a global level can prevent regulatory arbitrage and ensure consistent oversight across jurisdictions. As the crypto market continues to evolve, global cooperation becomes increasingly essential to maintain financial stability and protect investors.
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