Amid ongoing efforts to address financial stability risks, global policymakers are aiming to finalize recommendations for regulating the crypto sector by mid-year, the Financial Stability Board (FSB) says.
Ahead of the upcoming G20 meeting on Feb. 24-25, the FSB published a letter from its chair, Klaas Knot, to the finance ministers and central bank governors of the G20. Knot said that while global financial conditions have improved and there are growing hopes of a soft landing for the economy, the outlook remains uncertain.
“The combination of near record-high levels of debt, rising debt service costs and stretched asset valuations in some key markets could pose serious threats to financial stability,” the letter said.
Additionally, the letter details the FSB’s plans for addressing the ongoing financial stability concerns in the year ahead.
While the troubles of the crypto sector have been largely contained and haven’t spread to the wider financial system, the FSB indicated that it plans to finalize its recommendations for “the regulation, supervision and oversight of crypto-assets and markets and its recommendations targeted at global stablecoin arrangements” by July.
The FSB said it will also examine ways to enhance the data available for risk monitoring in the crypto sector, consider enhancing its crypto policy recommendations to cover the specific risks posed by decentralized finance, and continue to analyze the implications for overall financial stability.
At the same time, the letter stressed the importance of addressing vulnerabilities in the non-bank sector, such as the high degree of concentration and use of leverage in commodity markets.
“The opacity of activities across physical and derivatives commodities markets hampers the assessment of vulnerabilities and make it difficult to quantify financial stability transmission channels,” it said.
The FSB will also be studying sources of non-bank leverage that may not show up in regulatory data; undertake policy work to address liquidity mismatches in open-ended funds; and review planned reforms to money market funds.
In April, the FSB also plans to deliver a report to the G20 on achieving greater convergence in cyber incident reporting, and it will continue to work on managing climate-related transition risk by enhancing disclosure, data and analysis of these risks.