February 25, 2021

Volume XI, Number 56

Advertisement

February 25, 2021

Subscribe to Latest Legal News and Analysis

February 24, 2021

Subscribe to Latest Legal News and Analysis

February 23, 2021

Subscribe to Latest Legal News and Analysis

Financial Stability Board’s View on Crypto-Assets

On 10 October 2018, the Financial Stability Board (FSB) released a report assessing the risks and implications of crypto-assets on financial stability.  The FSB considered that the growth of crypto-asset trading platforms, the introduction of new financial products (crypto-asset funds and exchange-traded products) and growing interest by retail investors together could lead to implications on global financial stability.

In its report, the FSB assessed the primary risks in crypto-asset markets which could expose and undermine confidence in the financial system and in financial regulators.

These include:

  • the susceptibility of many crypto-asset networks to operational challenges from targeted attacks and relatively benign applications, due to their lack of ability to quickly process large numbers of transactions at the same time;

  • their decentralised nature resulting in inadequate governance, which gives rise to disputes and causes difficulty in resolving technological limitations or errors;

  • the exposure of financial institutions to crypto-asset markets through the provision of custody services and credit to crypto-asset trading platforms and wallet providers; and

  • the use of crypto-assets as collateral for consumer and business loans which may lead to margin calls, defaults and reduced borrowing.

The FSB has committed to monitoring the risks and will start to collect certain metrics including the market capitalisation and volatility of major crypto-assets, the trading volumes of crypto-asset derivatives and the use of crypto-assets in payment and settlement systems.

The FSB concluded that crypto-assets do not currently pose a material risk to global financial stability, partly due to the limited size of crypto-asset markets relative to the global financial system, at about $210 billion USD or 0.9% of the market capitalisation of the S&P 500 as at 4 October 2018.  However, there are broad policy issues to be addressed and vigilant monitoring is needed in light of rapid market developments.

Advertisement
Copyright 2020 K & L GatesNational Law Review, Volume VIII, Number 290
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Jim Bulling, KL Gates, financial services lawyer, funds management attorney
Partner

Mr. Bulling's practise focuses on banking and financial services and he acts for a range of entities in the financial services and funds management industry. His clients include Australian and international investment managers, banks, trustees of superannuation funds, wholesale and retail investment trusts, funds management companies and financial planning groups.

His main areas of focus include banking and financial product disclosure issues, financial services compliance issues, financial product distribution issues and superannuation and...

61-3-9640-4338
Edwin Tan, KL Gates, investment fund attorney
Lawyer

Mr. Tan is a commercial and regulatory lawyer with a focus on the financial services industry. He advises on a range of Australian regulatory and compliance issues relevant to FinTechs, fund managers, financial advisers and other financial services entities.

Mr. Tan also provides advice on governance and compliance measures targeted at the prevention of bribery, corruption and anti-money laundering.

61 3 9205 2176
Advertisement
Advertisement