The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, will report to the G20 finance ministers and central bank governors in October on regulatory and supervisory aspects of stablecoins and other crypto-assets. It is working to ensure that crypto-assets are subject to robust regulation and supervision.
"Crypto-assets, including so-called stablecoins, are fast-evolving. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system," The Financial Stability Board said in a statement.
An effective regulatory framework must ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes while taking account of new features of crypto-assets and harnessing potential benefits of the technology behind them, FSB added in the statement.
Crypto-assets are predominantly used for speculative purposes and many currently remain mostly outside the scope of or in non-compliance with financial safeguards, of which participants of these activities should be fully aware.
On compliance by crypto service providers, the watchdog said it is committed to using the enforcement powers within the legal framework in its jurisdiction to promote compliance and act against any violations.
It is important to note that the price of Bitcoin has dropped by as much as 75 per cent from its all-time high over the past seven months, and it has declined almost 60 per cent in the three months since April. Most other prominent crypto-assets have experienced even steeper declines over the same period.
"The recent turmoil in crypto-asset markets highlights the importance of progressing ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets, including so-called stablecoins," the statement said, adding that it will continue to facilitate cross-border and cross-sectoral cooperation among national financial authorities and international standard-setting bodies as they work towards developing a common understanding of the wide spectrum of crypto-assets.
In a February 2022 report, it had warned that crypto markets were fast-evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities, and increasing interconnectedness with the traditional financial system.