Crypto regulations pre-requisite for investor protection: FSB report
The Financial Stability Board (FSB) has published a report regarding its views on crypto assets. The report analyzed risk factors and policy issues faced by the crypto market. It concluded that digital assets are not a threat to financial stability, but they require supervision and proper guidelines for investor protection.
“Based on the available information, crypto assets do not pose a material risk to global financial stability at this time. However, vigilant monitoring is needed in light of the speed of market developments,” the report stated.
The report analyzes four main risks associated with the crypto market namely, market liquidity risks, volatility risks leverage risks and technological and operational risks. Along with assessing these risks, it also studied other risks which could affect financial stability such as risks arising if digital assets became widely used in payments and settlement and risks from market capitalization and wealth effects.
Regulation, an absolute necessity
“In addition to the potential financial stability concerns relating to any significant increases in the use of crypto assets, a variety of broader policy concerns exist, including: risks to consumer and investor protection and market integrity; money laundering, terrorist financing, sanctions evasion, fraud, and other illicit financing risks; tax evasion; and the circumvention of capital controls,” read the report.
The FSB believes that these problems increase when digital assets are not regulated. The board suggests that the global nature of these assets call for international coordination for applying regulations to the industry.
The report also discussed fraudulent crypto activities and security threats faced by these assets. The board stated that illiquidity, concentrated ownership, fragmented market structure, and other issues make assets susceptible to price manipulation. Many investors have lost significant amount of money because many blockchain networks have collapsed due to poor security.
FSB also said if the crypto market grows in the future, the market capitalization of these assets can impact the real economy. “A large market capitalization of crypto assets and easy convertibility with fiat currencies could entail bank funding pressures, which could materialize much quicker than in the case of physical banknotes or existing alternatives,” according to the report.
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