On Aug. 29, Basel issued overview of financial stability implications.
Basel published an executive summary entitled, The financial stability implications of multifunction cryptoasset intermediaries (MCIs), summarizing a report by the FSB.
MCIs are individual firms or groups of affiliated firms that offer wide range of crypto asset services, products and functions centered around operation of trading platform.
Most activities and their combinations have analogs in traditional finance, but often they are not provided by same entity or are provided only under significant controls to prevent conflicts of interest, promote market integrity, investor protection, stability.
Cryptoasset market turmoil in May/June 2022 and collapse of FTX in Nov. 2022 highlight fact that MCIS represent critical part of cryptoasset markets and can exacerbate structural vulnerabilities in those markets due to deep interconnections.
A major MCI failure could be significant for the entire ecosystem, financial stability.
FSB issued report to analyze issue, derive implications for policy consideration.
Policy Implications
Despite evidence suggesting that MCI vulnerabilities do not yet pose a significant threat to financial stability, gaps in information limit ability to accurately assess.
Spillover effects from crypto markets to traditional financial system have been limited, but stress events have caused significant losses to investors and shaken confidence.
Financial stability implications depend on how cryptoasset sector develops, how MCIs role changes, extent to which they expand their linkages with traditional finance.
And the effective implementation of globally consistent cryptoasset regulation.
Report notes policy implications for FSB, standard setting bodies (SSB) consideration.
Assess whether amplification risks for combinations of MCI functions, lack of proper governance, extensive conflicts of interest, are adquately covered by FSB and SSB recommendations, or whether they would warrant additional mitigating measures.
Consider ways to enhance cross-border cooperation and information sharing to help local authorities effectively regulate and supervise MCIs operating globally.
Consider ways to address information gaps, including whether disclosures and reporting adequately covered by FSB/SSB recommendations or need extra measures.
