Yesterday, the Financial Stability Board (FSB) had its plenary meeting in Basel at which one of the topics was crypto-assets and the collapse of the FTX cryptocurrency exchange.
It noted that the crypto-asset sector has remained relatively separate from mainstream finance so far, but that’s changing quite quickly, creating increasing risk.
Secondly, it observed that crypto exchanges like FTX tend to merge several roles that are deliberately separate in TradFi and action needs to be taken to address this. Specifically, they referred to “concentrations of risk, conflicts of interest, and a misuse of client assets.”
This has created added urgency for the FSB and others to formulate a global regulation and supervision framework.
The FSB also noted the fast growth of DeFi, and that some of the solutions replicate similar functionality in TradFi. Our observation is that TradFi instituions are increasingly interested in using DeFi.
As a result, the FSB plans to put more effort into monitoring this aspect of the crypto-asset sector for vulnerabilities.
In October, the FSB outlined some high-level proposals for crypto-asset regulations and opened a consultation that ends next week.
Meanwhile, the Basel Committee For Banking Supervision is currently finalizing the Basel Rules for Crypto-Assets, which will heavily influence the degree to which banks can get involved with crypto-assets. The rules were already fairly conservative, and the recent FTX collapse isn’t likely to encourage them to be lighter.