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FSB Plenary praises progress on addressing financial stability risks relating to digital assets

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The Financial Stability Board (FSB) Plenary met in Toronto last week to discuss ongoing work, including implementing the organization’s recommendations for addressing financial stability risks relating to digital assets.

The Plenary is the main decision-making body of the FSB, an international body that monitors and makes recommendations about the global financial system. It was established to promote international financial stability by coordinating the work of national financial authorities and international standard-setting bodies.

Its June 14 meeting discussed, amongst other things, follow-up work to the lessons learned from the banking sector turmoil, the general outlook for global financial stability, and the progress made in implementing the FSB’s July 2023 “recommendations for addressing financial stability risks relating to crypto-assets.”

Specifically, the two sets of “high-level” recommendations were released on July 17. The first of which advised on appropriate regulation, supervision, and oversight of digital asset activities and markets and the second was aimed at global stablecoin arrangements.

At the same time, the FSB made nine recommendations related to digital asset activities, which covered topics such as data collection, monitoring issuer governance frameworks, fostering cross-border regulatory cooperation, and improved disclosures from firms. It also backed routine contagion risk assessments to monitor the industry’s changing impact on the broader financial system.

“The Plenary welcomed the progress made in implementing the FSB’s July 2023 recommendations,” the body said. “The FSB will continue to closely monitor implementation, not only in FSB member jurisdictions but also in jurisdictions beyond the FSB. Given the particularly acute risk of regulatory arbitrage in the crypto space, broad global implementation is crucial.”

The Plenary also touched on other digital asset issues that “warrant further attention.” One such issue, according to the FSB, was that in emerging market and developing economies digital assets “pose particular challenges for monetary policy and capital flow management.”

The FSB stated it would “undertake further work to consider how these challenges can be addressed.”

Outside of the digital asset sphere, the Plenary discussed the general financial stability outlook, concluding that:

“Although there has been some improvement in the macroeconomic outlook, there are still a number of vulnerabilities in the financial system that require close monitoring. Some asset prices appear to have high valuations, bringing the risk of a sharp correction in the event of a large shock.”

To combat one such source of dramatic market shock, the FSB launched a public consultation on liquidity preparedness for margin and collateral calls in April; the comment period ended on June 18.

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