According to the global financial stability watchdog, the current rules to regulate the cryptocurrency sector are inadequate and hence regulators need to spruce up their risk assessments of the sector. The body further said that that there can be gaps in the policies of regulators on digital currencies because of any fast technological advancements.
In a report for G20 finance ministers and central bank governors, the Financial Stability Board (FSB) said that regulators need to strive to foresee the risks in the emerging industry which could have potential to affect financial stability.
The FSB said one potential tool is conducting an assessment of the exposure to digital money of banks and other financial firms. It added that no material stability risk is currently presented by digital coins.
The FSB said that the rules for regulating the cryptocurrency sector vary considerably across jurisdictions despite the fact that a number of global bodies including the Organisation for Economic Co-operation and Development and the Basel Committee on Banking Supervision are examining cryptocurrencies and investor protection, financial stability and money laundering.
Headaches for global and national policymakers have been caused by cryptocurrencies in their first decade.
In 2017, regulators first took note of bitcoin when its value nearly reached $20,000 because of frenzied retail buying. However last year, that bubble burst and it has dropped by about three-quarters of that value which reflects the volatility of the cryptocurrency.
The varying approaches to regulate cryptocurrencies can be viewed in the difference in approaches of China – where the sector is facing a near-total ban, to Japan’- where the regulators are trying to license cryptocurrency exchanges. Responses are still being worked out by other regulators including the United States and Britain.
Primarily because of the absence of some form of global standards, the reach and the scope of market or payments watchdogs sometimes is not able to bring under its purview crypto-assets, which is a term that includes the largest cryptocurrency bitcoin and the No.2 digital coin ethereum, said the Switzerland-based FSB said
Additionally, the impact of fast technological change can be that the “risks associated with crypto-asset markets and the level of significance of potential regulatory gaps will keep evolving.”
The FSB added that on the issue of whether more international coordination is needed, there is significant variation in the views among members – national authorities responsible for financial stability and other bodies.
So far this year, there has been an increase of 125 per cent in the value of bitcoin and was trading at almost $8,300 on Friday when this report was filed. Its 2019 rally has been punctuated by double-digit price swings reminiscent of 2017. This increase in the price of bitcoin has against raised t he interest of those investors who are risk tolerant. Major financial firms including Fidelity International have also moved to offer cryptocurrency-related services.
(Adapted from EuroNews.com)