Financial Stability Board outlines crypto-monitoring framework

The Financial Stability Board (FSB) published on Monday a report to the G20 finance ministers and central bank governors outlining a framework for monitoring the development of crypto-asset markets.

The report, in collaboration with the Committee on Payments and Market Infrastructures (CPMI), set out the metrics by which the FSB will scrutinise digital asset markets and their potential impact on financial stability.

While the Board – an international body chaired by Bank of England governor Mark Carney – does not believe crypto assets pose a material risk to financial stability currently, it recognises the market is growing and needs “vigilant monitoring”.

Monitoring risks

This monitoring will comprise a number of facets:

• Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall
• Monitoring the use of leverage and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system
• Monitoring metrics on trading volumes, pricing, clearing and margining for crypto-asset derivatives
• Metrics on exposures will also become part of the framework as they become available

Other bodies’ work

The FSB also outlined some of the work on crypto-asset scrutiny being carried out by other standard-setting bodies:

• The CPMI is investigating applications of distributed ledger (blockchain) technology and is conducting outreach, monitoring and analysis of payment innovations
• The International Organization of Securities Commissions (IOSCO) has established an initial coin offering (ICO) Consultation Network to discuss concerns – fraudulent, regulatory etc
• The Basel Committee on Banking Supervision (BCBS) is assessing the extent of banks’ direct and indirect exposures to crypto assets and clarifying potential treatment of such exposures

Objectives

The objective of the framework, the FSB said, is to identify any emerging financial stability concerns in a timely manner.

“To this end, it includes risk metrics that are most likely to highlight such risks, using data from public sources where available.

“The framework discusses the primary risks within crypto-assets and potential transmission channels to financial stability risks.”