The Financial Stability Board (FSB) and crypto-assets

The Financial Stability Board (FSB) and crypto-assets

Subject: Economy

Context:

The Financial Stability Board (FSB), on Monday, said it will report to the G­20 Finance Ministers and central bank Governors in October on the regulatory and supervisory approaches to stable coins and other crypto assets.

Concept:

The Financial Stability Board

•  It was established after the G20 London summit in April  2009as a successor to the Financial Stability Forum (FSF).
• The Financial Stability Board is headquartered in Basel, Switzerland.
• It is hosted and funded by the Bank for International Settlements, and is established as a not-for-profit association under Swiss law.
• The Board includes all G20 major economies, FSF members, and the European Commission.
• The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system.
• More specifically, the FSB was established to:
  • Assess vulnerabilities affecting the global financial system as well as to identify and review, on a timely and ongoing basis within a macroprudential perspective, the regulatory, supervisory and related actions needed to address these vulnerabilities and their outcomes.
  • Promote coordination and information exchange among authorities responsible for financial stability.
  • Monitor and advise on market developments and their implications for regulatory policy.
  • Monitor and advise on best practice in meeting regulatory standards.
  • Undertake joint strategic reviews of the international standard-setting bodies and coordinate their respective policy development work to ensure this work is timely, coordinated, focused on priorities and addresses gaps.
  • Set guidelines for establishing and supporting supervisory colleges.
  • Support contingency planning for cross-border crisis management, particularly with regard to systemically important firms.
  • Collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises.
  • Promote member jurisdictions’ implementation of agreed commitments, standards and policy recommendations, through monitoring of implementation, peer review and disclosure.
• The FSB’s structure comprises the Plenary as the sole decision-making body, a Steering Committee to take forward operational work in between Plenary meetings, and three Standing Committees, each with specific but complementary responsibilities towards the above process:
  • The Standing Committee on Assessment of Vulnerabilities (SCAV), which is the FSB’s main mechanism for identifying and assessing risks in the financial system.
  • The Standing Committee on Supervisory and Regulatory Cooperation (SRC), which is charged with undertaking further supervisory analysis or framing a regulatory or supervisory policy response to a material vulnerability identified by SCAV.
  • The Standing Committee on Standards Implementation (SCSI), which is responsible for monitoring the implementation of agreed FSB policy initiatives and international standards.
• The FSB’s decisions are not legally binding on its members – instead the organisation operates by moral suasion and peer pressure, in order to set internationally agreed policies and minimum standards that its members commit to implementing at national level.
• Unlike most multilateral financial institutions, the FSB lacks a legal form and any formal power, given that its charter is an informal and nonbinding memorandum of understanding for cooperation adopted by its members.
• The FSB has 68 member institutions, comprising ministries of finance, central banks, and supervisory and regulatory authorities from 25 jurisdictions as well as 10 international organizations and standard-setting bodies, and 6 Regional Consultative Groups reaching out to 65 other jurisdictions around the world.
• Organizations
  • Bank for International Settlements
  • European Central Bank
  • European Commission
  • International Monetary Fund
  • Organisation for Economic Co-operation and Development
  • The World Bank
• Standard-setting bodies
  • Basel Committee on Banking Supervision
  • International Association of Insurance Supervisors
  • International Organization of Securities Commissions

Crypto-assets:

• Crypto assets are purely digital assets that use public ledgers over the internet to prove ownership.
• They use cryptography, peer-to-peer networks and distributed ledger technology (DLT) – such as blockchain – to create, verify and secure transactions.
• They can have different functions and characteristics: they may be used as a medium of exchange; a way to store value; or for other business purposes.
• Crypto assets generally operate independently of a central bank, central authority or government.
• Some of the more common types of crypto assets are:
  • Cryptocurrency
  • Utility Tokens
  • Security Tokens
  • Non-Fungible Tokens
  • Stable coins
• A simpler way to understand a crypto asset is that they are digital assets except:
  • Crypto assets use cryptography
  • This kind of asset depends on distributed ledger technology.
  • One does not need a third such as a bank to issue crypto assets like what happens with bitcoins.
  • Crypto assets have three primary uses: as an investment, a means of exchange, and to access goods and services.