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Financial regulators, international standard-setting bodies and governments must act urgently to bolster cross-border efforts to contain crypto-currency risks, two new inter-related global reports have concluded. The dual crypto ‘thematic reviews’ published separately by the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) found various jurisdictions had made some progress in regulating the sector. But in a joint note, IOSCO and FSB flag the need for all parties to focus on ongoing challenges “such as uneven implementation, the risk of regulatory arbitrage, and enforcement gaps”. “Cross-border cooperation emerges as a critical common area of focus, due in part to the fact that implementation efforts are still ongoing. The FSB report highlights challenges such as fragmented responsibilities and inconsistent definitions, while the IOSCO report underscores the need for information sharing across the regulatory lifecycle, including during authorization, supervision, and enforcement stages,” the joint communiqué says. “Enhanced international cooperation and coordination is essential to address regulatory arbitrage and ensure consistent and coherent oversight.” The report from IOSCO, which represents financial regulators from more than 130 countries, says to date members have made patchy progress in putting into place crypto rules as per previous recommendations from the global body. However, the review says information-sharing between jurisdictions on crypto-asset markets has been “relatively limited to date”. The complementary FSB report focuses on higher-level global financial stability threats posed by crypto-assets, noting in particular the rapid rise of so-called ‘stablecoins’ – or digital assets allegedly backed on a one-to-one basis with regular currencies. According to the FSB, stablecoins have surged by almost 75 per cent year-to-date to total some US$290 billion as the broader crypto market doubled to reach about US$4 trillion during the previous 12 months. “While financial stability risks from crypto-assets appear limited at present, growing interlinkages with the traditional financial system and the expanding use cases for stablecoins highlight the need for close monitoring of developments and activity and robust regulatory oversight,” the FSB report says. “Recent developments in these markets reflect both their significant growth and their increasing integration into financial systems, which, if left unchecked, could amplify vulnerabilities and introduce new risks to financial stability.” The FSB, chaired by Bank of England governor, Andrew Bailey, posted eight recommendations to governments and other authorities to help manage the burgeoning crypto risks. In a letter to G20 finance ministers and central bank governors earlier this month, Bailey cited the “importance for international regulatory alignment and cooperation” around crypto markets to counter any potential systemic fallout. “Uneven implementation creates opportunities for regulatory arbitrage and complicates oversight for an inherently globally interconnected market,” he says in the letter.
