Financial Stability Board Assesses Risks on the Crypto Market

In 2017, cryptocurrencies were able to gain mainstream attention to the point that Bitcoin was able to almost reach $20,000. And at this point, regulators had no other choice but to actually look closely. In 2018, different regulators came up with different approaches to the industry. However, despite this, ICOs were able to still come up with much larger funding during the first quarter of 2018 than the entire 2017.

There are countries as well that have a more open approach while there are those that have stricter rules. And for this reason, Japan has called for G20 to come up with a unified regulation.

Recently, the Financial Stability Board (FSB) published a framework that pertains to the monitoring of cryptocurrency assets. The FSB is an international body tasked to monitor the global financial system and coordinate with different G20 countries.

The board mentioned that “monitoring the size and growth of crypto-asset market is critical to understanding the potential size of wealth effects, should valuations fall”. In addition to this, “the use of leverage, and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system”.

Identifying Financial Stability Concerns

An excerpt from the framework says that “The objective of the framework is to identify any emerging financial stability concerns in a timely manner. To this end, it includes risk metrics that are most likely to highlight suck risks, using data from public sources where available”.

ICOs are among the things that are looked into by the board at this point. For instance, ICO issuance and capital inflows and outflows will become part of the wealth effect metrics. In addition to this, institution metrics will be looked into in order to assess the interest of institutional investors and other traditional financial markets.

With the help of this particular framework, FSB hopes to “help to identify and mitigate risks to consumer and investor protection, market integrity, and potentially to financial stability”.

Not a Risk to Financial Stability

Though the FSB aims to regulate the crypto industry, Mark Carney who acts as chairman of FSB noted that “while the FSB believes that crypto-assets do not pose a material risk to global financial stability at this time, it recognizes the need for vigilant monitoring in light of the speed of market developments”.

There is a growing number of regulators taking a closer look at the crypto industry. For instance, the International Organization of Securities Commissions (IOSCO) has established the
ICO Consultation Network. It aims to discuss the concerns and also the possibilities of this type of fundraising option. In addition to this, a “Support Framework” has also been made in order to help understand international member bodies in understanding the effects of international-based ICOs on the local investors.

A Need to Regulate and Not Ban Cryptos

The European Parliament report has also advocated cryptocurrency regulations. It even considered that it is a mistake to ban cryptocurrencies. The report mentioned that “policy makers and regulators should not ignore VCs, nor should they attempt to ban them. Both extreme approaches are incorrect”.

Is there a bright future in the market considering the regulations? Could this mean that attracting more traditional markets is an inevitable future for cryptos?