Financial Stability Board says more crypto safeguards needed to prevent FTX fallout situation

The Global Financial Stability Board (FSB) said on Tuesday that more measures may be needed to prevent complex crypto firms like FTX from destabilizing the broader financial system.

The FSB, which is the grouping of regulators, central banks and treasury officials from the G20 economies, said the turmoil in crypto markets last year when FTX collapsed highlighted how “multifunction” crypto companies, which provide both trading and other Combines activities, can increase vulnerabilities.

The FSB said in a report that the vulnerabilities are similar to those found in traditional finance, including leverage, liquidity mismatches, technology and operational weaknesses.

“These weaknesses are compounded by a lack of effective controls and operational transparency, poor or no disclosures, and conflicts of interest,” it said.

It said the evidence suggests that the threat to broader financial stability and the economy is currently limited.

The FSB and IOSCO, the global securities watchdog, have already published high-level recommendations for monitoring crypto activities this year.

Regulators should, however, assess whether these measures adequately curb the growing risks to the financial system from crypto, the report said.

“Further work may be needed to enhance cross-border cooperation and information sharing and address the information gaps identified in the report,” the FSB said.

© Thomson Reuters 2023

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