a new international framework is being developed

after European regulations MiCA and TFR, which more strictly regulate crypto-assets, Web3 is not done with regulators. As the High Council for Financial Stability (HCSF) reminds us in its 2022 annual report, published on October 25, the next wave of regulations must come from international bodies: the Financial Stability Board (CSF or FSB in English) and the Committee of Basel. which brings together central bank governors and supervisors from 27 countries and sets prudential rules for the sector.

No systemic risk… but still

In its report, HCSF, which monitors the systemic risk of the financial sector in France, looked at the crypto-asset market. He concludes that the sector “It seems to represent at this stage systemic riskbecause of its relatively limited size and weak links with traditional finance”. However, he notes a “lack of reliable data” AND “increasing ascending channels due to growing interest of traditional investors”which lead him to judge that a “Coordinated international regulation is needed”.

These sticky channels are the development of crypto-asset settlement services by major players in the payments industry (Visa, MasterCard…) and investments such as crypto-indexed ETFs, the creation of crypto derivatives and the composition of reserves that serve as backing for certain stable currencies, in addition to US Treasury bonds.

KLSH also highlights the multiple risks associated with these markets: volatility, leveraged products, lack of transparencycomplexity for the uninitiated, governance of DAOs (decentralized autonomous organizations), security breaches, hackingtransaction anonymity, etc.

“Same risks, same rules”

This internationally coordinated regulation is being drafted. The FSB published on October 11 a proposal regulatory framework for crypto-assets, based on the principle “same activities, same risks, same rules” : the idea is to regulate traditional finance and crypto-assets in the same way as long as intermediaries and products perform the same function. This proposal also applies to stablecoins, these cryptocurrencies backed by coins. It is open for consultation until December 15.

“Crypto-asset markets are evolving rapidly and may reach a point where they pose a threat to global financial stability due to their scale, structural weaknesses and increasing interdependence with the traditional financial system.”notes the FSB.

Reinforced prudential rules for banks

For its part, the Basel Committee on Banking Supervision opened on June 30, 2022. the second visit on its proposals for the prudent handling of crypto-assets for banks, the first version of which came out in June 2021. The regulatory framework is expected to be approved by the end of the year.

It should impose higher prudential requirements for banks exposed to crypto-assets (required capital must be set aside in proportion to the exposure), especially for cryptocurrencies and stablecoins whose stabilization mechanisms are not considered satisfactory . For the riskiest assets, banks must provide a capital charge equal to the amounts exposed in order to be able to absorb all possible losses.

The response of the actors of the financial world to this consultation comes down, roughly, to the search for a regulatory framework that is not too restrictive for banks, with the risk that they will not be able to embrace the potential of the sector.

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