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In response to potential threats to financial stability posed by complex crypto firms, such as the FTX incident last year, the global Financial Stability Board (FSB) has suggested that additional measures may be necessary. The FSB, comprising regulators, central banks, and treasury officials from G20 economies, highlighted the risks associated with “multifunction” crypto firms that engage in various activities, including trading.

The FSB’s report identifies vulnerabilities in the crypto market similar to those present in traditional finance, encompassing issues such as leverage, liquidity mismatches, and operational vulnerabilities. The lack of effective controls, operational transparency, poor or nonexistent disclosures, and conflicts of interest further amplify these vulnerabilities, according to the report.

While current evidence indicates limited threats to broader financial stability and the economy, the FSB emphasizes the need for regulators to evaluate existing measures and determine if they adequately mitigate risks associated with crypto activities. The report underscores the importance of cross-border cooperation, information sharing, and addressing information gaps.

Earlier this year, the FSB and IOSCO (International Organization of Securities Commissions) released high-level recommendations for supervising crypto activities. Despite these efforts, the FSB acknowledges that ongoing assessment and potential adjustments are necessary to ensure the resilience of the financial system against crypto-related risks.

As the crypto landscape evolves, global regulators are actively monitoring and adapting frameworks to maintain financial stability while fostering innovation. The call for enhanced cross-border cooperation reflects the interconnected nature of crypto markets and the importance of a coordinated regulatory approach to address emerging challenges.

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