On Friday the Financial Stability Board (FSB) whose purpose is to promote global stability, published a report into crypto-assets. The paper will be delivered at the meeting of G20 Finance Ministers in Japan on 8-9 June. It considers whether more member coordination is required to address crypto-asset issues. The FSB recommendation is to continue monitoring and keep crypto-assets under review.
The report delves into the crypto-asset activities of many of the world’s global financial watchdogs. Some of the details have previously been covered, such as the Basel Committee and FATF reports. Much of the activity relates to investor and consumer protection, market integrity, bank exposures, payment systems, financial stability monitoring and AML/CFT.
It then considers the potential for things to slip through the cracks concerning regulation and market oversight. This is particularly the case where a crypto-asset is not considered a security. The report doesn’t mention examples, but this would include Bitcoin and probably Ether. The FSB avoids using the phrase cryptocurrency because it doesn’t regard these crypto-assets as meeting the attributes of a currency.
As a result of the gap in coverage, in some jurisdictions there could be issues relating to market transparency, and client funds aren’t appropriately separated and custodied. Plus fundraising documents may not be subject to the same regulations that would apply to securities.
Although the FSB doesn’t explicitly mention it, this could encourage gravitation towards jurisdictions which viewed as more crypto-asset friendly.
The report notes that it’s a fast-moving sector, which means the risks might evolve. This, combined with different legal frameworks in various jurisdictions, makes it much harder to create a coherent response from all the G20 members.
FSB members have differing views about the level of coordination between them that should be attempted. Even though there are regulatory gaps, at present crypto-assets are not seen as a global stability risk. Hence, the FSB’s recommendation is to continue to monitor the system and make forward-looking assessments, as opposed to taking action now.