Financial Stability Board Calls for Increased Crypto Safeguards to Avert FTX Fallout Situation

The global Financial Stability Board (FSB) issued a report on Tuesday suggesting that additional measures may be necessary to prevent the collapse of complex crypto firms like FTX from having a destabilizing impact on the broader financial system.

The FSB, which comprises regulators, central banks, and treasury officials from the G20 economies, pointed to the turmoil in crypto markets last year when FTX collapsed as evidence of how “multifunction” crypto firms, which engage in both trading and other activities, can exacerbate vulnerabilities. These vulnerabilities, including leverage, liquidity mismatches, and technology and operational vulnerabilities, parallel those found in traditional finance.

The report also highlighted the lack of effective controls and operational transparency, poor or non-existent disclosures, and conflicts of interest as factors that further amplify these vulnerabilities. While the FSB acknowledged that current evidence suggests a limited threat to wider financial stability and the economy, it emphasized that regulators need to assess whether current measures are sufficient to prevent risks from crypto from spilling over into the financial system.

The FSB and the International Organization of Securities Commissions (IOSCO) have already issued high-level recommendations for supervising crypto activities this year. However, the report advised that further work may be necessary to improve cross-border cooperation and information sharing and address the information gaps identified.

The article is by Thomson Reuters, 2023.