G20 Regulators Create a Framework while Watching Over Banks for Crypto Involvement

G20 regulator FSB has developed a framework to monitor the risk from crypto assets that will be delivered in the G20 meeting this weekend in Buenos Aires. Moreover, other international watchdogs are also looking into the banks’ involvement in cryptos and considering introducing capital safeguards.

G20 regulator FSB develops the framework to monitor crypto risks

Financial Stability Board (FSB), the international body that monitors the global financial system has published a framework for monitoring the risks from cryptocurrencies. This new framework aims to spot the financial stability risks from the early on so that the required actions can be taken.   

FSB basically coordinates the financial regulation for the G20 and the framework it has established with the Bank of International Settlement’s Committee on Payments and Market Infrastructures focuses on how the risk from the crypto market could spread to other financial systems as well.

In a statement, FSB stated,

“Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall.”

With an aim to spot the risks early enough to take the appropriate action, FSB also shared,

“The use of leverage, and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system.”

However, the data available is not exactly accurate or comprehensive as the crypto market is rapidly developing which is also fragmented at times. Hence, the global regulator will also assess if, at later stages, the framework will need more data.

Also, read: G20 Summit in Action: The Debate Over “Bitcoin- Asset Vs Currency” is ON

Looking into banks’ involvement in cryptos

The framework also covers trading pricing, volumes, margining and clearing of derivatives related to crypto assets like Bitcoin futures, that were launched by CME Group in December, last year.

However, despite developing the framework, FSB says crypto assets and trading platforms aren’t a risk to the global financial stability. But apparently, they do pose other concerns such as investor protection, money laundering, terrorist financing, and market integrity.

Moreover, the Basel Committee, FSB’s affiliate that creates the bank capital standards is looking into the exposure of banks to cryptocurrency assets and introducing safeguard in its move to discourage the involvement of banks in this market.

In this initial stock take, the committee is also exploring if the regulators are asking the lenders to set aside a particular capital against crypto holdings. The committee is also considering if rules need to be rewritten to explicitly mention that holdings involving crypto assets have to be covered.

Meanwhile, the International Organization of Securities Commissions is evaluating the big cryptocurrency exchanges among other crypto asset platforms and the regulations around them. As for the framework established, it will be delivered to the G20 before its meeting this weekend in Buenos Aires.