- According to the FSB, there is a need for increased regulation in the crypto industry.
- Multifunction crypto firms are those that combine trading and other activities, said the FSB.
- The FSB noted that collapses in multifunction crypto firms could destabilize traditional finance.
The Financial Stability Board (FSB), a global organization that regulates and makes recommendations regarding the global financial system, has said there is a need for increased regulation in the crypto industry.
According to its recent report, the monitoring organization noted that increasing regulatory measures would tackle the potential destabilization of the wider financial sector by crypto firm collapses.
The report mentioned multifunction crypto-asset intermediaries (MCIs), which are firms that offer combinations of crypto-asset services that are typically conducted by separate legal entities in traditional finance.
Binance, FTX, and Coinbase are examples of MCIs mentioned in the report. Moreover, the report claimed that the collapse of FTX showed that MCIs represent a critical part of the market and can exacerbate structural vulnerabilities.
According to the FSB, vulnerabilities around crypto firms that are similar to those in traditional finance include leverage, liquidity mismatches, and technology and operational vulnerabilities. However, the organization noted that the lack of controls and operational transparency, poor disclosures, and conflicts of interest amplify these vulnerabilities.
Based on current evidence, the FSB noted that the threat to wider financial stability and the economy is limited at present. Nevertheless, it provided high-level recommendations on supervising cryptocurrency activities to prevent the potential threats they could pose in the future.
Following its observations, the international body noted that it is left for regulators to assess its recommendations to know whether they would prevent risks from crypto being amplified across the wider financial system.
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