The Financial Stability Board (FSB), a global organization encompassing regulators, central banks, and treasury officials from G20 economies, issued a stern warning that collapses of complex crypto companies like FTX could create potential instability within the financial system. The FSB’s latest report highlighted the inherent fragilities of such multifaceted crypto firms and pointed out the necessity of taking additional measures to prevent their volatile effects on the global financial environment.
The FSB’s latest report serves as a warning, particularly following last year’s collapse of FTX, drawing attention to the risks created by multifaceted crypto firms. The report underlines that these types of crypto companies, which combine trading and various other activities, could amplify similar security vulnerabilities seen in traditional finance. Among these security issues are liquidity mismatches, technological and operational weaknesses.
The report also notes that conflicts of interest, lack of effective controls, operational transparency, and disclosures can further intensify the risks associated with cryptocurrencies. Although current evidence shows a limited threat to financial stability and the economy, the FSB indicates that proactive measures are necessary to prevent possible future crises.
Earlier this year, the FSB had made recommendations in conjunction with the International Organization of Securities Commissions (IOSCO) for the supervision of cryptocurrency activities. Despite these efforts, the FSB emphasizes the need for regulators to assess the adequacy of these measures in preventing the rise of crypto-related risks in the financial system.
The FSB’s report concludes by calling for further work to address identified information gaps and to strengthen cross-border cooperation and information sharing. Especially in an environment experiencing rapid technological advancements, the FSB emphasizes the importance of preempting potential risks associated with crypto activities.