The Impact of Multifunction Crypto-Asset Intermediaries on Market Stability Post-FTX Collapse

The Financial Stability Board (FSB) report, along with other sources, offers significant insights into the impact of multifunction crypto-asset intermediaries (MCIs) and key market events, such as the collapse of FTX in November 2022 and the crypto-asset market turmoil in May/June 2022. These events have underscored the crucial role and potential risks posed by MCIs in the crypto-asset markets.

MCIs are firms or groups of affiliated firms providing a wide range of services and products centered around a trading platform. Many engage in proprietary trading and investment, while some issue, promote, and distribute crypto-assets, including stablecoins. The structural vulnerabilities they can exacerbate in the markets include issues related to leverage and liquidity mismatch. Their vulnerabilities are akin to traditional finance, such as technology and operational vulnerabilities, leverage, liquidity mismatch, and interconnections. Some combinations of functions within a single MCI can amplify these vulnerabilities, especially in the absence of effective controls, operational transparency, and conflict of interest management. The centrality of MCIs in the crypto-asset ecosystem and their concentration and market power pose additional risks. These vulnerabilities could spill over into the traditional financial system through various channels​​​​.

The FSB’s assessment indicates that the threat to financial stability from an MCI’s failure is limited at present, but significant information gaps make this a qualitative assessment. The financial stability implications of MCIs depend on the development of the crypto-asset sector, the evolution of MCIs’ roles, and the implementation and enforcement of comprehensive, consistent global regulations. The global reach of MCIs complicates regulation due to their complex organizational structures, incorporation in crypto-friendly jurisdictions, and potential for regulatory arbitrage​​​​.

The collapse of FTX and other key players in 2022 had a profound impact on the cryptocurrency market, leading to a drop in prices and prompting a regulatory crackdown. This event, along with the earlier collapse of stablecoin TerraUSD, significantly affected Bitcoin and other major tokens. Bitcoin, in particular, lost more than 65% of its value in 2022, plummeting to its lowest since 2020. The overall crypto market also took a hit, dropping from a peak value of $3 trillion in November 2021 to a low of $796 billion in 2022, following the FTX implosion. However, the market has shown resilience, with the value recovering to above $1 trillion in 2023. Venture capital investment in crypto firms also experienced a decline, dropping significantly in the third quarter of 2022 compared to earlier in the year. This decline wasn’t solely attributed to the FTX failure but was part of a broader slowdown that began with the collapse of the TerraUSD ecosystem​​.

The analysis of these developments highlights the intricate interplay between MCIs, market dynamics, regulatory landscapes, and financial stability. The evolution of the crypto market, particularly in light of these recent upheavals, will be critical in shaping future regulatory approaches and market resilience.

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FSB Releases High-Level Recommendations for Global Stablecoin Regulation

The Financial Stability Board (FSB) has published a comprehensive report outlining key recommendations for the regulation, supervision, and oversight of global stablecoin (GSC) arrangements. The report aims to address potential financial stability risks posed by GSCs at both the domestic and international level.

The FSB emphasizes the need for authorities to possess and utilize the appropriate powers and tools to regulate, supervise, and oversee a GSC arrangement and its associated functions and activities effectively. This includes the issuance, redemption, and stabilization of the value of the coins; transfer of coins; and interaction with coin users for storing and exchanging coins.

The report also underscores the importance of comprehensive oversight of GSC activities and functions. It recommends that authorities apply regulatory, supervisory, and oversight requirements consistent with international standards to GSC arrangements based on their functions and risks.

In the context of increasing globalization and interconnectedness of financial markets, the FSB highlights the critical role of cross-border cooperation, coordination, and information sharing among authorities. This cooperation is seen as essential to ensure comprehensive regulation, supervision, and oversight of a GSC arrangement across borders and sectors.

The FSB also calls for GSC arrangements to have a comprehensive governance framework with clear and direct lines of responsibility and accountability for all functions and activities within the GSC arrangement.

Although the report focuses on financial stability risks, it acknowledges that it does not cover other important issues related to stablecoins, including anti-money laundering, data privacy, cybersecurity, consumer and investor protection, market integrity, competition policy, taxation, and monetary policy.

To tackle these issues, the FSB suggests a comprehensive supervisory and regulatory framework for GSC arrangements.

The FSB’s recommendations are intended to be flexible to accommodate the wide variety of regulatory frameworks potentially applicable to GSCs around the world.

The FSB also plans to conduct a review of the implementation of these recommendations by the end of 2025 to determine whether further review or action is necessary.

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Financial Stability Board Finalizes Global Crypto Asset Regulatory Framework

The Financial Stability Board (FSB) has finalized a global regulatory framework for crypto-asset activities, aiming to promote comprehensive and internationally consistent regulatory and supervisory approaches. The announcement was made on July 17, 2023, and the framework is based on the principle of ‘same activity, same risk, same regulation.’

The FSB’s framework incorporates insights from the past year’s events in crypto-asset markets and feedback received during the FSB’s public consultation. It provides a robust basis for ensuring that crypto-asset activities and so-called stablecoins are subject to consistent and comprehensive regulation, commensurate to the risks they pose.

The framework consists of two distinct sets of recommendations. The first set includes high-level recommendations for the regulation, supervision, and oversight of crypto-asset activities and markets. The second set comprises revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements.

The final recommendations draw on the implementation experiences of jurisdictions and build on the principles that informed the consultative framework. These principles include ‘same activity, same risk, same regulation’; high-level and flexible; and technology neutral.

The FSB has strengthened both sets of high-level recommendations in three areas: ensuring adequate safeguarding of client assets, addressing risks associated with conflicts of interest, and strengthening cross-border cooperation.

The FSB and standard-setting bodies will continue to coordinate in promoting globally consistent regulation by considering the need for further guidance or standards and monitoring implementation status at the jurisdictional level.

The recommendations focus on addressing risks to financial stability and do not comprehensively cover all specific risk categories related to crypto-asset activities. Central Bank Digital Currencies (CBDCs), envisaged as digitalized central bank liabilities, are not subject to these recommendations.

The FSB has been collaborating closely with sectoral standard-setting bodies (SSBs) and international organizations to ensure a coordinated, mutually supportive, and complementary approach to monitoring and regulating crypto-asset activities and markets.

This global framework includes a shared workplan that the FSB and SSBs have developed for 2023 and beyond.

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FSB to set crypto regulatory norms globally


According to Dietrich Domanski, who is stepping down from his position as secretary general of the Financial Stability Board (FSB), recent events have shown that it is “necessary to manage risks” inside the industry.


The collapse of the FTX exchange prompted action from a global financial body, which in turn led to ideas in early 2023 about how to control the cryptocurrency market.

It has been said that the Financial Stability Board (FSB), an international organization that is responsible for monitoring the global financial system, has declared that it would be laying out plans to regulate cryptocurrencies over the course of the next year.


Domanski also stated that one of the goals of developing suggestions for cryptocurrency regulation would be to hold cryptocurrency projects “to the same standards as banks” if the projects are providing services that are comparable to those that are provided by banks. This statement was made in reference to Domanski’s earlier statement.


The recent failures of important cryptocurrency ventures such as Terraform Labs and the FTX exchange have led to widespread criticism of the decision by policymakers throughout the globe to let the FTX market to flourish before to erupting.These rules and regulations, according to the official from the FSB, would not have fulfilled the “conditions for effective administration,” therefore they would have prevented scenarios such as the collapse of Terra and FTX.


The Financial Stability Board (FSB) wants to create a timeline for the first ideas to be adopted by global authorities over the next several months. Following the presentation of recommendations, the Financial Stability Board (FSB) reaches a consensus on a set of guidelines. These guidelines may then be codified into law by a number of different national and regulatory authorities.


The former chief executive officer of FTX, Sam Bankman-Fried, was taken into custody by the Royal Bahamas police not too long ago, and he is due to be deported to the United States. After the United States government sent Bankman-Fried with an official notification that it had filed criminal charges against him, he was taken into custody by law enforcement.The list of allegations includes not just money laundering but also conspiracy to commit wire and securities fraud, as well as the more common offenses of wire and securities fraud.


A few hours before he was brought into detention, Bankman-Fried contested the allegation that he was a participant in a Wirefraud discussion group that was reportedly made up of FTX employees.


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Cryptoassets Use in Ukraine War under Scrutiny by Global Regulators: Reuters

The use of crypto assets is being closely watched by global financial regulators amid the war in Ukraine after worry about its use to evade Western sanctions on Russia, according to Reuters. - 2022-03-22T113310.044.jpg

U.S. and European lawmakers have sent out multiple warnings to digital asset companies asking them to comply with Western financial sanctions imposed on Russia after it invaded Ukraine. However, reports have said that the $1.8 trillion crypto sector has not completely accepted the requests from lawmakers.

Crypto exchanges have turned a blind eye to orders for a cut off of all Russian users, which has given rise to concerns that Russia could use cryptocurrencies as a loophole to navigate around sanctions that have been put upon the country by the United States and Europe, according to a report by Blockchain.News.

David Schwimmer, LSEG’s chief executive officer, said that crypto exchanges are stuck in between either abiding by the philosophy of independence from regulation or supporting the centralised system of global finance – which calls for the requirement of regulation and transparent frameworks.

Another report by Blockchain.News said that Russians with strong social connections, who are under international sanctions for the invasion of Ukraine, have been using cryptocurrencies to launder their wealth.

Crypto watchdog firm Elliptic said that it found millions of crypto addresses connected to criminal activity and 400 digital asset providers who help users buy cryptocurrencies using rubles.

According to Reuters, some crypto exchanges have rejected calls to cut off all Russian users, raising concerns that crypto could be used as a way to circumvent sanctions.

On the flip side, Ukraine has raised more than $100 million in cryptocurrencies after calling for help on social media for donations to aid their military and humanitarian needs in bitcoin and other digital tokens.

“We at the FSB are monitoring the situation, the conflict situation relative to cryptos,” Patrick Armstrong, a member of the Financial Stability Board’s (FSB) secretariat, told a City & Financial conference in London.

Armstrong said that the FSB – which groups financial regulators, central banks and finance ministry officials from the Group of 20 economies – is sharing the information it obtains among its members.

To block potential sanctions loopholes, the European Union issued guidance on March 9 informing companies that sanctions on loans and credits include crypto assets.

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Preemptive Measures Needed to Regulate Crypto Market, FSB Says

Regulators need to prepare measures in advance to bring the crypto market to obey rules and regulations, as risks from the sector could grow quickly, a risk monitoring watchdog for the G20 economies said. - 2022-02-17T111853.069.jpg

The Financial Stability Board (FSB) said that although crypto assets currently dominate a small proportion of the financial system, gaps in data make it difficult to assess their full use, and many investors do not entirely understand what they are buying.

The FSB reported that big banks and hedge funds have also stepped foot into the sector with derivatives referencing crypto assets in complex investment strategies.

As such, financial stability risks could rapidly escalate, underscoring the need for timely and preemptive evaluation of possible policy responses, the report said.

“If the current trajectory of growth in scale and interconnectedness of crypto-assets to these institutions were to continue, this could have implications for global financial stability.” 

Cryptoassets form a market that is highly volatile and still opaque. Hence, regulators said a significant concern about the sector is how a meltdown in crypto assets could feed into the broader financial industry.

In a major incident in the crypto sector last May, Bitcoin and Ether saw a massive plunge after China tightened curbs on crypto. Therefore, yields on benchmark U.S. and German government bonds fell as investors dumped digital tokens for perceived safe-haven assets.

Decentralised finance (DeFi), a crypto offshoot, is another concern for the FSB since it allows users to make cryptocurrency transactions while bypassing the traditional gatekeepers of finance. It has also become a tool for criminal activities.

According to Reuters, DeFi soared in popularity during the pandemic as rock-bottom interest rates pushed investors to search for yield.

“Without sufficient regulation and market oversight, DeFi and associated platforms might present risks to financial stability,” the FSB report said.

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G20-Backed FSB Sets Out Roadmap for Stablecoins and CBDCs, Optimizing Cross-Border Payment System

The Financial Stability Board (FSB), a G20-backed think tank, has cited the duo of government-issued Central Bank Digital Currencies (CBDCs) and stablecoins as key drivers in pursuing a better cross-border payment system. (32).jpg

A recent report published by the FSB highlights the projected roadmap in the buildup to facilitate a switch to sustainable payment models. The body said it is recommending that relevant authorities should “make any revisions to standards and principles or provide further guidance supplementing existing standards and principles in light of the FSB Report and following their review of their existing frameworks,” including on cooperation, coordination, and information sharing amongst authorities.

Several countries have different regulatory frameworks that guide their embrace and permit stablecoins and digital currencies as a whole. Despite these frameworks, most of which are unfriendly, there has been a significant switch from traditional financial payment models with their inherently high cost and slow speed. More consumers are beginning to rely solely on privately issued stablecoins for the transfer of value. 

With the uptight effort, the FSB and its partner organizations are working hard to stump the dominant role of these privately issued digital assets in global payments. The proposed recommendation to revise local standards is billed to run till the end of 2021.

The FSB also posits that CBDCs can be a very viable competitor to digital currencies and recommends that global monetary watchdogs, including the IMF, World Bank, and the Bank for International Settlements (BIS), will need to capitalize on its already concluded stock-take of provisional domestic CBDC designs and central bank experimentation to determine the extent they could be used for cross-border payments.

At present, as many as 110 Central Banks are noted to be at various stages of their CBDC development. The overall target is to provide sustainable solutions to the pervasive challenges in local and international payments. For these, a recommendation for CBDC interoperability is also a development offering that CBDC issuers will need to consider in the near future.

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