The cryptocurrency industry needs strong regulation before it becomes so pervasive it poses financial stability risks, claims Federal Reserve Vice Chair Lael Brainard.
During a Bank of England conference in London, Brainard remarked, “It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”
Reuters detailed that while the crypto market has touted digital assets as fundamentally different from traditional finance, Brainard claims the sector has proven to be susceptible to the same risks and should be subject to the same rules.
She added that these risks include leverage, fire sales, opacity, maturity and liquidity mismatches and contagion. She also remarked that new technologies and financial engineering cannot alone transform risky assets into safe ones.
Brainard continued, “Future financial resilience will be greatly enhanced if we ensure the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome. National and international cooperation will be needed to ensure compliance with existing regulations and tailor new ones.”
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