Context: In a recent report, the Financial Stability Board (FSB) has highlighted the gaps in multi-function crypto asset intermediaries (MCI) operating globally.
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- The report has recommended measures to enhance cross-border cooperation and information sharing to address the gaps.
- The report has highlighted FTX collapse in November 2022, to underline the risk that occurs due to several different activities within the platform.
- The risk is exacerbated by the lack of effective controls on their activities, poor disclosure of their corporate structure and conflict of interests due to trading in self-issued crypto assets.
| FTX Collapse: The US Firm FTX filed for bankruptcy last year. The Securities and Exchange Commission (SEC) in the USA charged FTX for defrauding customers and observed that the company had concealed information from the investors. |
What is the Financial Stability Board?
- Mandate: FSB is an international body that monitors the global financial system to ensure international financial stability.
- Collaboration: FSB works jointly with IMF to study trends and conduct early warning exercises.
- Origin: It was established in 2009, after the G20 summit in London, to replace the Financial Stability Forum.
- Headquarters: Basel, Switzerland.
- Board Composition: The board includes all G20 major economies.
- Members: 68 member institutions comprising ministries of finance, central banks, and supervisory and regulatory authorities from all over the world.
- Definition: As per the report, Multi-Function crypto asset Intermediaries (MCI) are individual forms or groups of related firms that offer a range of crypto products and services related to trading.
- Examples: Binance, Bitfinex and Coinbase.
- Finances: The funding source for these platforms is the transaction fee generated in the trading-related activity and from operating a blockchain infrastructure for which they may collect some transaction validation fee.
- Clashing Interests: These Multi-Function crypto asset Intermediaries have self-issued crypto assets and trade in the same, leading to a conflict of interest. This impacts market integrity, investor protection and financial stability.
- Market-Related Vulnerabilities: Lack of liquidity and concentrated holdings coupled with opaque supply and circulation jointly allow the prices of MCI-issued crypto-assets to be inflated.
- Technological and operational vulnerabilities: Multi-Function crypto asset Intermediaries have been a target of cyber-attacks and a number of them have had funds stolen by hackers in the past.
Also Read: RBI Starts Pilot Programme For Wholesale Digital Rupee
Crypto based Threat in India
- Money Laundering: WazirX Crypto-Currency Exchange was accused of Money Laundering via purchase & transfer of virtual crypto assets.
- Market Manipulation: CoinDCX was accused of wash trading, which involves artificially inflating the trading volume of a cryptocurrency by buying and selling it to oneself.
- Hacking: Key data of over 3.25 lakh Indian users were leaked to the dark web in BuyUCoin hack.
Source: FSB
December 13, 2023