Global Regulators Propose Crypto Monitoring Framework

Cryptocurrencies such as bitcoin and ether don’t pose much of a risk to global financial stability at the current time, but that isn’t stopping global regulators from creating a framework to monitor risk from cryptocurrency.

Reuters cited the Financial Stability Board which is in charge of coordinating financial regulation among the Group of 20 Economies when reporting that the framework covers how risks from crypto assets could spread to other areas of the financial system. “Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall,” the FSB said in a statement, reported Reuters. “The use of leverage, and financial institution exposures to crypto-asset markets, are important metrics of transmission of crypto-asset risks to the broader financial system.”

The move on the part of global regulators comes as the Securities and Exchange Commission in the U.S. is stepping up oversight of the market. In June it’s leading authority on bitcoin, cryptocurrency and initial coin offerings (ICOs) ruled that some well-known cryptocurrencies like bitcoin and Ethereum are not securities. However, the coins offered during initial coin offerings very likely are entirely — or mostly — securities, according to news from CNBC. As such, they can expect to come under the regulatory control of the SEC and relevant securities laws. “Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” William Hinman, head of the Division of Corporate Finance for the SEC, said in a speech at the Yahoo All Markets Summit: Crypto conference in San Francisco.  The specific issues, according to Hinman, hinge on the buyer’s expectations for the coin when purchased and whether the buyer expects that the coin will result in a payout from a third party (presumably from whom a buyer purchases the coin).  If coin buyers are looking for a return on their asset, it is safe to assume the SEC will rule that piece of crypto a security. That, he noted, will capture many, but not all, crypto assets in the market. He noted cryptocurrencies like bitcoin and Ethereum do not fall under SEC regulatory territory at this time. Bitcoin, he said, has no central party that determines its progress going forward. Ether is not a security because the Ethereum network is similarly decentralized.