With the crypto industry caught in a whirlpool of FTX’s fallout, the Financial Stability Board (FSB) is looking to develop a globally consistent regulatory framework.
Steven Maijoor, the chair of FSB’s working group on crypto assets, said the rapid growth of crypto markets in the presence of structural vulnerabilities and incomplete regulations and supervision means they will soon reach a point where they become a threat to the stability of the global financial system.
Like FSB, regulators across the world are exploring tighter requirements with renewed urgency. Maijoor said FSB was already looking to establish global standards for crypto regulation. The Board’s annual report, published Wednesday, reflected the chair’s worries about it potentially threatening financial stability. The report highlighted a number of crypto’s structural vulnerabilities which are similar to those in traditional financial markets.
Maijoor believes trust is built in drops and lost in buckets. He drew parallels between crypto-asset markets and the downfall of the Bank of Amsterdam about 300 years ago. The chair said it is FSB’s goal to draw lessons from the past. Maijoor outlined that many crypto markets are characterized by high levels of information asymmetry. This makes it nearly impossible to determine which investors have bad intentions and which platforms are at risk of overreach.
He said crypto cannot be considered a fad and many crypto activities do not comply with existing regulations or take place outside of the regulatory perimeter. Maijoor explained that the cross-border nature of crypto assets poses an obvious challenge for national supervisors. As such, they require regulatory response coordinated across borders which is what the FSB is working on.
