FSB Urges for Enhanced Crypto Regulations to Safeguard Financial System

Growing concerns highlight the need for enhanced oversight and collaboration.

The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, has expressed concerns over the potential risks posed by complex cryptocurrency firms like FTX. The FSB suggests that additional measures may be necessary to prevent from destabilizing the broader financial system.

Last year's market turmoil, triggered by the collapse of FTX, underscored how multifunctional crypto firms, which engage in various activities including trading, can intensify vulnerabilities. These vulnerabilities, according to the FSB, mirror those in conventional finance, encompassing leverage, liquidity mismatches, and technological and operational weaknesses.

The FSB's report further emphasized that these vulnerabilities are magnified by ineffective controls, lack of operational transparency, inadequate disclosures, and conflicts of interest. However, the FSB also noted that the current threat to broader financial stability and the economy appears to be limited.

Earlier this year, the FSB and the International Organization of Securities Commissions (IOSCO) released high-level recommendations for overseeing crypto activities. The FSB's report urges regulators to evaluate whether these measures sufficiently mitigate the risk of crypto-related disruptions spreading throughout the financial system.

The FSB also highlighted the potential need for further efforts to improve cross-border cooperation, information sharing, and addressing information gaps identified in the report.