FSB Downplays Impact: Downturn in Multi-Function Crypto Firms Won't Severely Affect 'Real Economy

A recent communication from the Financial Stability Board has highlighted the imperative need for further assessments regarding potential consequences, shedding light on existing "significant information gaps."

Published on a Tuesday, the report by the Financial Stability Board (FSB) sought to downplay the perceived threat to "the real economy" stemming from the collapse of cryptocurrency firms engaged in diverse activities. The FSB, a global standard-setting body, iterated the urgency for supplementary evaluations, citing persistent "significant information gaps."

The FSB's ongoing examination of the financial stability implications linked to multifunction crypto-asset intermediaries (MCIs) in July underscored concerns. The FSB, entrusted with monitoring financial systems and proposing regulations to prevent financial crises, specifically focused on MCIs—individual firms or affiliated groups offering a range of services, products, and functions, typically centralized around operating a trading platform.

Major players in the cryptocurrency sphere, such as Coinbase or Binance, were identified as potential MCIs. The FSB expressed caution, emphasizing that crypto firms engaged in diverse activities are more prone to failure. The report stressed that the effectiveness of mitigating the consequences of such failures is contingent on the implementation of global crypto regulations. Furthermore, it called attention to "information gaps," advocating for enhanced cross-border collaboration and information sharing.

The report's findings indicated that vulnerabilities in MCIs and traditional financial firms share similarities. However, the risks escalate when MCIs engage in proprietary trading, operate as market-makers on their platforms, and partake in lending and borrowing activities.

The FSB asserted the necessity for a thorough evaluation to determine whether the disclosures and reporting requirements for MCIs are adequately addressed or if additional measures are warranted. The report underscored the potential incongruity in combining functions within MCIs, highlighting that such combinations, typically separated in traditional finance, prima facie appear inconsistent with the principle of ‘same activity, same risk, same regulation.’

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