Failure of Multi-Function Crypto Firms a Limited Threat to 'Real Economy': FSB

The collapse of crypto firms that engage in multiple activities isn't a big threat to "the real economy," according to a report by the Financial Stability Board (FSB) published Tuesday.

The report by the international standard-setter also said that further assessments are required because "significant information gaps remain."

The FSB, which monitors financial systems and proposes rules to help prevent financial crises, said it was assessing the financial stability implications of multifunction crypto-asset intermediaries (MCIs) in July. MCIs are individual firms or groups of affiliated firms that combine a broad range of services, products and functions typically centered around the operation of a trading platform, according to the FSB. This could apply to numerous crypto heavyweights, like Coinbase or Binance.

The FSB warns that crypto firms combining different activities are more vulnerable to failure and that mitigating the impact of such a failure depends on how well global crypto regulation is implemented. The report also identified "information gaps" that require enhanced cross-border cooperation and information sharing.

The report found that the vulnerabilities of MCIs and firms in traditional finance are not very different. However, vulnerabilities increase when MCIs engage in proprietary trading, market-making on their own trading venues, and lending and borrowing.

The FSB said there is a need to assess whether disclosures and reporting requirements of MCIs are adequately covered or would warrant additional measures.

"Combining functions in MCIs that are typically restricted or separated for traditional finance appears prima facie inconsistent with the principle of ‘same activity, same risk, same regulation’," the report said.

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