FSB sees ‘limited’ risks from collapse of crypto-holdings

The collapse of crypto firms with diverse lines of business poses a limited threat to the real economy. This conclusion was reached by the Financial Stability Board (FSB) of the G20.

Multifunction crypto-asset intermediaries (MCIs) are a critical component of the #cryptoasset ecosystem as their business models have expanded and continue to evolve. Our report looks at MCI vulnerabilities and risks they may pose to #FinancialStability
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— The FSB (@FinStbBoard) November 28, 2023

Analysts of the advisory body pointed to the need for further assessments of potential bankruptcy consequences of such organisations given significant data gaps. The latter require expanding cross-border cooperation among regulators.

In July, the FSB developed recommendations for a global regulatory framework for digital assets.

At that time, experts announced the start of studying the activities of multifunction crypto-asset intermediaries (MCIs) — standalone organisations or groups of affiliated firms that bring together a wide range of services and products, typically connected with operating as a trading platform.

In the document, these criteria apply to Binance, Coinbase, Bitfinex and FTX prior to its collapse.

According to the FSB, MCIs are more exposed to collapses than ordinary crypto firms. The mitigation of the latest fallout depends on the quality of the implementation of global regulation in the digital assets space, the report says.

Experts concluded that the vulnerabilities of crypto-holdings and TradFi do not differ much. But the risks of the former increase if they operate as a dealer, market maker or lending platform.

The FSB said there is a need to assess whether MCI disclosure and reporting requirements are being properly observed, or whether additional measures are required.

“Bringing together functions that are typically constrained or separated for TradFi may, at first glance, appear incompatible with the principles of conduct, risk and regulation,” the report says.

In September, G20 member countries approved the recommendations by the FSB and IMF on the supervision and control of digital assets.