Multi-Function Crypto Firms Failure: Minimal Threat to 'Real Economy', Says FSB

Jonathan Stoker Nov 28, 2023, 13:20pm 133 views

Multi-Function Crypto Firms Failure: Minimal Threat to 'Real Economy', Says FSB

Crypto Firms' Collapse Not a Major Threat to Global Economy, FSB Report Reveals

A recent report from the Financial Stability Board (FSB) asserts that the potential downfall of multi-faceted crypto companies does not pose a significant threat to the global economy. This revelation was made public on Tuesday.

Call for Further Assessments Due to Information Gaps

The FSB, an international standards organization that monitors financial systems and suggests guidelines to avert financial crises, highlighted the need for additional evaluations. It pointed out that crucial information gaps still exist that need to be addressed.

FSB's Evaluation of Multifunction Crypto-Asset Intermediaries

Back in July, the FSB started investigating the financial stability implications of Multifunction Crypto-Asset Intermediaries (MCIs). MCIs refer to single firms or affiliated group of firms that offer a variety of services and products, generally revolving around the management of a trading platform. This definition might be applicable to several crypto giants like CoinbaseCoinbase or BinanceBinance.

Concerns Over Firms Engaging in Diverse Activities

The FSB has expressed concerns about crypto firms that engage in a wide array of activities, considering them more susceptible to failure. It further suggested that alleviating the effects of such a collapse largely depends on the successful implementation of global crypto regulation. The report also pinpointed "information gaps" requiring improved cross-border cooperation and data exchange.

Similarities and Differences Between Vulnerabilities of MCIs and Traditional Finance Firms

According to the findings of the report, the vulnerabilities of MCIs and traditional finance firms aren't significantly different. However, the risks escalate when MCIs indulge in proprietary trading, market-making on their own trading platforms, and lending and borrowing.

The Necessity for Assessing Disclosure and Reporting Obligations of MCIs

The FSB pointed out the need to evaluate if the current disclosure and reporting obligations of MCIs are sufficient or if additional measures are necessary. The report stated that the merging of functions in MCIs, which are usually restricted or separated in traditional finance, seems at first glance inconsistent with the principle of ‘same activity, same risk, same regulation'.

IMF and FSB Warn Against Comprehensive Crypto Prohibitions in Joint Paper

In a joint paper, the International Monetary Fund (IMF) and the FSB cautioned that overall bans on crypto wouldn't be effective.

Edited by Jonathan Stoker

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