The ongoing market turmoil has alarmed regulators across the globe highlighting the need for a firm regulatory framework as opined by many.
On November 17, a Financial Stability Board (FSB) official commented on the scenario and urged lawmakers to develop a globally uniform regulatory framework. FSB is responsible for supervising and recommending standards for the global financial system and comprises major economies and institutions like the International Monetary Fund (IMF).
Steven Maijoor, chairperson of the FSB’s department dedicated to crypto assets, an executive board member of the central bank of the Netherlands, and a member of the European Central Bank’s supervisory board, commented on the topic at the Institutional Digital Assets and Crypto Regulation Symposium organized by City and Financial Global in London, a leading research-based provider of conferences and virtual summits in the UK.
In his speech, he criticized the speedy advancement of the crypto market in the present-day scenario. He said the escalated growth along with the structural vulnerabilities and incomplete regulations and supervision only implies that in the coming times crypto might even prove to be a threat to the stability of the global financial system.
Regulators across the globe are looking into ways to increase their authority over the crypto sector and FSB is one of them. In its recently published annual report, the organization has highlighted the need for global standards of crypto regulation and said that a lot of vulnerabilities in the sector are similar to those in the traditional financial market and must be regulated in the same way.
Maijoor also drew similarities between the crypto asset markets and the downfall of the Bank of Amsterdam around three centuries ago. The Amsterdam banking crisis of 1763 in the Netherlands followed the end of the seven years’ war. At this time prices of grain and other commodities were falling sharply, and the supply of credit dried up due to the decreased value of collateral goods. He said that the incident taught FSB how difficult it is to gain trust while losing it is easy.
Talking of the crypto sector, he said that many crypto markets are distinguished by high levels of information asymmetry challenging the process of identifying actors with bad intentions and those at risk of overreach.
Further, he said that the crypto sector cannot be considered a fad and that many of the sector activities do not even comply with the current regulation nor take place outside of the regulatory perimeter.
Maijoor highlighted the role of the FSB in regulating cross-border transactions taking place through crypto which is proving to be a significant challenge for national regulators. FSB has also published reports on global jurisdiction to develop a new financial framework for risks in the sector. The report focuses on international regulation and has proposed stringent regulation of stablecoins and is open to public consultation as reported by Todayq.
FSB as an institution has laid substantial focus on financial stability but Maijoor said that the increasing hacks, fraud, and malicious intent should also be on the regulator’s list.