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Several financial regulators have addressed digital assets this week. First, the Financial Stability Board (FSB) issued a statement on the international regulation and supervision of crypto-asset activities. Among other things, the statement noted “[t]The recent turmoil in crypto-asset markets highlights their inherent volatility, structural vulnerabilities, and the problem of their growing interconnectedness with the traditional financial system. notes that the FSB “will report to G20 finance ministers and central bank governors in October on regulatory and oversight approaches to stablecoins and other crypto-assets.”
Second, the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) have issued guidance on applying the Principles for Financial Market Infrastructures (PFMI) to systemically important stablecoin arrangements. (SA), including entities forming an integral part of these agreements. provisions. According to a press release, “The guidelines emphasize that the transfer function of an SA is comparable to the transfer function performed by other types of financial market infrastructures (FMIs). Accordingly, an SA that performs this transfer function is considered an FMI for the purposes of applying the PFMI and, if determined by competent authorities to be systemically important, the SA as a whole should comply with all relevant principles of the PFMI.” The guidelines highlight various risks associated with stablecoins, including the risk that “stablecoins, interacting with cryptos and Defi, could lead to a fragmented and fragile monetary system.”
Third, late last week, IOSCO released the IOSCO Crypto-Assets Roadmap for 2022-2023, which will focus on two work streams: (1) Crypto and Digital Assets (CDA) and (2) decentralized finance (DeFi). According to a press release, “both streams of work will primarily focus on analyzing and responding to market integrity and investor protection issues in the crypto-asset space.” The CDA workflow will be led by the UK’s Financial Conduct Authority and “will involve looking closely at (i) fair and orderly trading, transparent markets, market suitability and manipulation (Part 1 ), and (ii) custody, safekeeping and soundness (Part 2).” The DeFi workflow will be led by the U.S. Securities and Exchange Commission and will “explore market integrity, investor protection, and financial stability risks of DeFi.”
Finally, this week, the US Treasury Department’s Office of Financial Research (OFR) published an article on Central Bank Digital Currencies (CBDCs). The paper explores how the introduction of a CBDC would affect the stability of the banking system. Among other things, the document addresses concerns that “the option of holding a CBDC may induce depositors to turn to weak banks.” The authors “suggest that a well-designed CBDC can reduce rather than increase financial fragility.”
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