G20 Watchdog Develops Framework for Monitoring Crypto-Assets

The Financial Stability Board (FSB) has set out a standardized framework for spotting any potential financial stability risks posed by the cryptocurrency market.

The Financial Stability Board (FSB), the body which coordinates financial regulation for the G20 economies, has released a report which outlines a framework for monitoring the impact of developments in the crypto market on global financial stability.

The FSB, which works to promote global financial stability, describes itself as “an international body that monitors and makes recommendations about the global financial system”.

In a statement released on Monday, the regulatory body clarified that while the risk posed by cryptocurrencies to financial stability is, at present, minimal, there is still a need to keep an eye on the market. This need arises primarily owing to the swiftness and volatility of crypto market developments, which have prompted many a central bank to issue warnings and advisories to investors.

“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.”

Expounding on the purpose of the report, which chalks out the metrics the FSB will utilize to monitor the market (such as the price volatility of cryptocurrencies, the size and growth of ICOs, and the usage of crypto in payments), the global regulatory body went on to add:

“Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall. 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.”

The FSB has, however, warned that data is not entirely reliable at times, since the market is still developing; the need for extra data will be assessed in the future.

The framework was developed in collaboration with the Committee on Payments and Market Infrastructures (CPMI), and the report has been delivered to the G20 Finance Ministers and Central Bank Governors, prior to their meeting in Argentina on July 21-22. In addition to the framework, the report also highlights the work that other regulatory bodies are undertaking to monitor the burgeoning and largely unregulated crypto industry.

For example, the CMPI keeps tabs on payments-related innovations, while the International Organization of Securities Commissions (IOSCO) is focused on the growing ICO market and protecting investors.

The Basel Committee on Banking Supervision (BCBS) is looking into how banks handle crypto assets, while the Financial Action Task Force (FATF) will be concerned with the illegal use of crypto funds, such as terrorism financing and money laundering.

The report was developed after FSB head Mark Carney (who also serves as Bank of England Governor) penned a letter to G20 finance ministers and central bank governors in March this year, explaining that the regulatory body had undertaken a review of cryptocurrencies and determined that they pose little to no risk to the global economy. The letter also added that the FSB would “identify metrics for enhanced monitoring of the financial stability risks posed by crypto-assets and update the G20 as appropriate”.