FSB confirms crypto isn’t a risk to financial stability – for now

The Financial Stability Board (FSB) has confirmed that cryptocurrencies do not currently pose a risk to financial stability.

A report by the Switzerland-headquartered agency assesses the primary risks present in crypto-assets and their markets, such as low liquidity, the use of leverage, market risks from volatility and operational risks.

The FSB concludes that while crypto-assets are not currently a threat, if their use continues to evolve it could have implications for financial stability in the future. This could include reputational risks to financial institutions and their regulators; risks arising from direct or indirect exposures of financial institutions; risks arising if crypto-assets became widely used in payments and settlement; and risks from market capitalisation and wealth effects.

“Crypto-assets also raise several broader policy issues, such as the need for consumer and investor protection; strong market integrity protocols; anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision, including implementation of international sanctions; regulatory measures to prevent tax evasion; the need to avoid circumvention of capital controls; and concerns relating to the facilitation of illegal securities offerings,” the report states.

Members of the FSB have already taken a wide variety of actions relating to crypto, including issuing warnings to investors about the risks and providing statements supporting the potential of the underlying distributed ledger technology (DLT). “These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity,” the FSB says.

The report comes after the FSB told the G20 nations in July that while crypto-assets do not pose a material risk to global financial stability at this time, there is a need for vigilant monitoring in light of the speed of market developments.