FSB points out the shortcomings of multi-functional cryptocurrency intermediaries highlighted by the FTX collapse.
The Financial Stability Board released a report highlighting the need for additional regulation in the cryptocurrency industry to mitigate risks similar to traditional finance, especially after the FTX collapse.
The Financial Stability Board (FSB), a pivotal global financial watchdog, recently highlighted the need for increased regulatory oversight of the cryptocurrency sector. This call to action, highlighted in a report released on November 28, gains relevance in the aftermath of the FTX fiasco, a fiasco that shook the cryptocurrency world to its core.
FSB’s analysis pinpoints vulnerabilities within multi-functional cryptoasset intermediaries (MCIs). These platforms, which mix trading and related activities, reflect traditional financial vulnerabilities such as leverage risk, liquidity mismatches, and operational failures.
However, FSB shows that the unique combination of MCI features such as proprietary trading and cryptocurrency asset lending enhances these risks. The report highlights that inadequate controls and lack of transparency in these companies are increasing risks.
The FSB also raises concerns about MCI’s central role in the cryptocurrency ecosystem, highlighting its market concentration and influence. This centrality, combined with the aforementioned vulnerabilities, poses broader risks to the financial environment.
In response, the FSB urges regulators to consider whether existing recommendations made by the FSB and the International Organization of Securities Commissions are sufficient to mitigate these cryptocurrency-related risks. The FSB suggests that further efforts may be needed to address identified gaps and improve cross-border cooperation and information sharing.
The call for action follows the FSB’s finalization of its global cryptocurrency framework recommendation in July and joint policy recommendations with the International Monetary Fund (IMF) in September at the request of the G20.