The Financial Stability Board (FSC) has published and submitted a report to the financial ministers and central bank governors of the G20, offering counsel on frameworks for the supervision of crypto-assets as well as the impacts of blockchain.

Challenges and complications

The G20 financial watchdog notes in the report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

Due to the “fragmented nature” of crypto-asset markets, classification across multiple jurisdictions also imposes other challenges. Furthermore, the publication draws attention to the metrics on prices, trading volumes and volatility, speculating that there may be foul play and “prohibited practices” such as “wash trading”, “spoofing”, and “pump and dump”.

Prior to the G20 summit, the FSB had released a letter to the G20 outlining its priorities with “vigilant monitoring” of emerging risks posed by the nascent technology appearing first on the list. However, it noted that the FSB’s “initial assessment is that crypto-assets do not pose risks to global financial stability at this time”.

After the G20 summit in Buenos Ares in March 2018, the FSB was called upon by the G20 ministers of finance and central bank governors to provide a report of its work on crypto-assets as well as those of other standard-setting bodies which includes the Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS).

Report summary in brief

Summarily, the FSB has now developed a means to monitor the “financial stability implications of crypto-assets” which it believes will be more reliable and complementary to data from public sources, which at present is the primary source.

The IOSCO reports to have created an ICO Consultation Network, opening up channels for dialogue regarding experiences and concerns. It is working on a support framework with the intention of developing a means to protect investors by examining domestic and cross-border risks posed by ICOs.

The CPMI reports that it has conducted “significant work” regarding the applications of distributed ledger technology (DLT) and at present is also working in “outreach, monitoring, and analysis of payment innovations”.

On the side of banking, the BCBS has been analyzing the “materiality” of banks to direct and indirect crypto-asset exposure and clarifies how to treat it, and monitor these developments in relation to crypto-assets and fintech.

The report comes as 2018 continues to be a year of global government and institutional blockchain and cryptocurrency recognition. Efforts to regulate, tax and innovate the nascent industry are being made worldwide at a feverish pace. In due time, these findings could have a profoundly positive impact on the future of the tech.

 

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