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Global Fintech Regulator Board Announces Bitcoin Rules for G20 Countries

Global Fintech Regulator Board Announces Bitcoin Rules for G20 Countries

Financial regulators the world over are a worried lot as bitcoin and its ilk begin to ascend economic structures. In lieu of the threats, insecurities and the flux the systems are expected to drive, G20 set up a watchdog organization, Financial Stability Board (FSB). The Board has now released a Framework which counters the risks of cryptocurrencies in asset markets and preparations financial systems have to incorporate in order to overcome such onslaughts.

Risk identification

The purpose of the Framework, according to FSB is to identify issues which could affect stability, as early as possible so as to take effective action.

According to FSB’s official statement, “Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall.”

The factors which the framework will measure in order to identify the stage and state of risk to a financial system from these virtually generated coins are – “use of leverage,” and “exposure of an institution to crypto-asset markets.”

Lack of Data

The intent of the framework was reiterated clearly. However, FSB was also quick to reiterate that these metrics would be limited since the data is very less. It cautioned that in some analysis, the data input is very patchy considering the market is highly fragmented and considerably “opaque.”

FSB included a rider on its measuring capabilities. It stated that on a need-basis, it would include more comprehensive data at a later stage.

Divided regulatory sentiment

G-20 is a major economic bloc globally and does set the scene for other economic blocs to follow. However, with the organization itself, the members are divided in the stance the group should take with respect to monitoring and regulating cryptocurrency trade.

The result of the divide among member countries – with France demanding ‘radical action,’ and other countries ‘minimal action,’ – is the currently announced Framework.

The data these regulations consider are pricing, trading volumes, margining and clearing for derivatives from crypto assets.

More input from the Basel Committee

Bank capital regulations for the block are developed by another board, called the Basel Committee. This committee is now reviewing the exposure of the regulatory banks of its member countries to crypto assets.

The major area of work Basel Committee is up against in the current session is to identify if regulators are under pressure from lender to reserve capital for holding crypto assets. If this is the case, the next step for the Committee is to identify if the rules have to be re-addressed in order to ensure holdings are covered explicitly.

As per standard practices, crypto asset investments and crypto asset trading platforms are not expected to be financial risks in terms of global stability.  However, the method and the processes do raise an environment of concern, specifically calling for investor protection as well as market integrity, besides money laundering or financing terrorism.

FSB has already begun the process of integrating crypto assets in mainstream economic activity, by introducing the action plan or framework for member countries central banks to implement.