FTX failure reveals flaws in multifunction crypto-asset intermediaries — FSB
The Financial Stability Board suggested the crypto industry might still require additional regulatory measures to prevent another FTX-like situation at the hands of crypto service providers.
The Financial Stability Board (FSB) — the global body that monitors the financial services industry — released a report on Nov. 28 claiming the crypto industry might need additional regulations to prevent another catastrophe on the scale of the FTX scandal.
According to the report, the FSB said the market turmoil that ensued from the collapse of cryptocurrency exchange FTX brought to light the flaws in multifunction crypto-asset intermediaries (MCIs), which are platforms that combine trading and related activities.
“MCI vulnerabilities are not very different from those of traditional finance, including leverage, liquidity mismatch, technology and operational vulnerabilities, and interconnections.”
However, in the case of MCIs, it said particular combinations of functions could “exacerbate these vulnerabilities,” such as MCI engagement in “proprietary trading, market making on their own trading venues and the lending and borrowing of crypto-assets.”
The FSB said these vulnerabilities are amplified even more by what it called the lack of “effective controls” and transparency.
“There are also additional vulnerabilities stemming from the centrality of MCIs in the crypto-asset ecosystem and their concentration and market power,” it said.
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