Multiple financial regulatory bodies addressed digital assets this week. First, the Financial Stability Board (FSB) issued a statement on international regulation and supervision of crypto-asset activities. Among other things, the statement noted "[t]he recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system." The statement called for regulation and oversight commensurate with the risks of crypto assets, including stablecoins. The statement also notes that the FSB "will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets."
Second, the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) published guidance on the application of the Principles for Financial Market Infrastructures (PFMI) to systemically important stablecoin arrangements (SA), including the entities integral to such arrangements. According to a press release, "The guidance highlights that the transfer function of an SA is comparable to the transfer function performed by other types of financial market infrastructure (FMI). As a result, an SA that performs this transfer function is considered an FMI for the purpose of applying the PFMI and, if determined by relevant authorities to be systemically important, the SA as a whole would be expected to observe all relevant principles in the PFMI." The guidance highlights various risks related to stablecoins, including the risk that "stablecoins, interacting with cryptos and Defi, could lead to a fragmented and fragile monetary system."
Third, late last week, the IOSCO published the IOSCO Crypto-Asset Roadmap for 2022-2023, which will focus on two workstreams: (1) crypto and digital assets (CDA) and (2) decentralized finance (DeFi). According to a press release, "Both workstreams will primarily focus on analysing and responding to market integrity and investor protection concerns within the cryptoasset space." The CDA workstream will be led by the UK Financial Conduct Authority and "will entail looking closely at (i) fair, orderly trading, transparent markets, suitability and market manipulation (Part 1), and (ii) safekeeping, custody and soundness (Part 2)." The DeFi workstream will be led by the U.S. Securities and Exchange Commission and will "explore the market integrity, investor protection and financial stability risks of DeFi."
Finally, this week the U.S. Department of the Treasury's Office of Financial Research (OFR) published a paper addressing central bank digital currencies (CBDCs). The paper explores how introducing a CBDC would affect the stability of the banking system. Among other things, the paper addresses concerns that "the option to hold CBDC can increase the incentive for depositors to run on weak banks." The authors "suggest that a well-designed CBDC may decrease rather than increase financial fragility."
For more information, please refer to the following links:
- FSB Statement on International Regulation and Supervision of Crypto-asset Activities
- BIS: Application of the Principles for Financial Market Infrastructures to stablecoin arrangements
- International Organization of Securities Commissions: IOSCO Crypto-Asset Roadmap for 2022-2023
- OFR: Central Bank Digital Currency: Stability and Information
- US Treasury study finds CBDCs a plus for commercial bank stability
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