Crypto Assets do not Pose Risk for Global Financial System Now, Says G20 Watchdog

 In Exchanges, Governments and Regulations

The virtual currency market continues to evolve rapidly and therefore needs vigilant monitoring, the Financial Stability Board has explained in its special crypto report.

Financial Stability Board (FSB), the international consultancy body set up by G20, issued its highly anticipated cryptocurrency report on Wednesday. At the moment, digital currency assets are not a threat to the global financial system as the crypto market is relatively small, but its rapid expansion requires careful oversight, FSB said and thus reaffirmed its previous position.

The consulting body analyzed several key issues in the report: market risks from volatility, low liquidity, the use of leverage, and significant operational risks. The overall assessment is that virtual coins lack common characteristics of sovereign money because people do not use them as a store of value, means of payment, or general unit of account. However, the crypto market is in the process of quick change with the rapid growth of exchanges, the involvement of more retail investors, and the introduction of new instruments such as virtual coin funds and exchange-traded products (ETP).

 “It [FSB] has concluded that, based on the available information, crypto-assets do not pose a material risk to global financial stability at this time. However, crypto-assets raise several broader policy issues, and vigilant monitoring is needed in light of the speed of market developments,” the body wrote in the report.

Lack of liquidity, a high concentration of ownership, fragmented market structure, and other issues make virtual coin vulnerable to price manipulation and illegal activities like Ponzi schemes, the Board said.

“Crypto-assets also raise several broader policy issues, such as the need for consumer and investor protection; strong market integrity protocols; anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision, including implementation of international sanctions; regulatory measures to prevent tax evasion; the need to avoid circumvention of capital controls; and concerns relating to the facilitation of illegal securities offerings,” FSB explained in a statement.

Evaluating the G20 member states’ responses to those concerns, FSB said that various regulatory and enforcement activities had been balanced so far as they both preserved innovations and protect investors and market integrity. However, oversight of crypto assets is not an easy process due to sparse data and direct and the indirect exposure of various financial institution including banks, FSB explained.

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In July, the organization released a special framework for monitoring the crypto market. FSB, chaired by Bank of England Governor Mark Carney, is one of the leading global financial institutions that significantly impact G20 decisions.

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