Additional Regulations May be Needed to Prevent Another FTX Style Catastrophe, FSB Report
Additional regulation may be needed to prevent another FTX-style collapse according to a new report from the Financial Stability Board (FSB) released Tuesday, November 28th.
The international financial monitoring body’s report particularly focuses on multifunction crypto-asset intermediaries (MCI), which they define as “individual firms, or groups of affiliated firms, that combine a broad range of crypto-asset services, products, and functions typically centered around the operation of a trading platform.”
The goal of the study, in part, was to examine whether or not FSB recommendations went far enough to cover concerns regarding MCIs and whether additional policies may be warranted based on the results.
“MCI vulnerabilities are not very different from those of traditional finance, including leverage, liquidity mismatch, technology and operational vulnerabilities, and interconnections,” the report reads. “However, certain combinations of functions could exacerbate these vulnerabilities.”
The report used the crypto market crash and collapse of FTX in November 2022 as examples of MCI vulnerabilities, particularly when it comes to leverage and liquidity mismatch.
Disgraced FTX founder, Sam Bankman-Fried, who was found guilty on seven different fraud charges in Manhattan federal court last month, used over $8 billion of customer funds on various real estate purchases, political contributions, and more.
Failure of a major MCI, like FTX, poses a “significant” risk to the crypto-asset ecosystem due to their “centrality and interconnectedness,” the FSB’s report argues.
When the crypto exchange ultimately collapsed, it had wide-reaching effects on the crypto market at large. BlockFi CEO, Zac Prince, testified that his company lost
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