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    FSB Report Examines Sources of Regulatory Gaps on Crypto-Assets

    May 31, 2019

    FSB published a report that focuses on the regulatory and supervisory issues associated with crypto-assets. The report, which is intended for G20 finance ministers and central bank governors, offers an update on the work of BCBS, CPMI, IOSCO, the Financial Action Task Force (FATF), FSB, and the Organization for Economic Co-operation and Development (OECD). The report notes that gaps may arise from the absence of international standards or recommendations and in cases where such assets are outside the perimeter of regulators. The report concludes with a recommendation that the G20 keep the topic of regulatory approaches and potential gaps, including the question of whether more coordination is needed, under review.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.


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    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • The FSB report highlights that international organizations are monitoring and analyzing developments, setting supervisory expectations for firms, and clarifying how international standards apply to crypto-assets. However, assessing the significance of potential gaps is challenging, given the rapidly evolving nature of the crypto-asset ecosystem and related risks. It is suggested that a forward-looking approach to monitoring crypto-assets can help provide a basis for identifying potential gaps and areas that should be prioritized or focused on. The work of FSB has focused on monitoring risks to financial stability and preparing a directory of regulators on crypto-assets, which was published April 2019. The FSB assessment concluded that crypto-assets do not currently pose material risks to global financial stability, but that they do raise a number of further policy issues beyond financial stability. Moreover, FSB concluded that vigilant monitoring remains warranted, as a variety of new products and services seem to be under development. To this end, a further monitoring note will be submitted to its Standing Committee on Assessment of Vulnerabilities (SCAV) in September 2019, including developments in stablecoins and tokenization. 

    Additionally, the BCBS initiatives on crypto-assets include developing high-level supervisory expectations for banks engaged in crypto-asset activities, monitoring developments related to crypto-assets, and quantifying banks’ crypto-assets exposure. The Basel Committee is collecting data on banks’ direct and indirect exposures to crypto-assets as part of its end-2018 Basel III monitoring exercise. BCBS will discuss the results of this data collection exercise at its meeting in October 2019 and the results will inform the monitoring work of FSB. BCBS is also considering whether to formally clarify the prudential treatment of crypto-assets across the set of risk categories such as credit risk, counterparty credit risk, market risk, and liquidity risk.

    Another international standard-setter IOSCO had, in May 2018, agreed to develop an initial coin offering (ICO) support framework to assist members in dealing with the ICO-related regulatory risks. IOSCO is also examining issues and risks associated with the trading of crypto-assets on crypto-asset trading platforms and aims to publish a final report on this by the end of 2019. In addition, IOSCO´s policy committee on accounting is engaging with the International Financial Reporting Interpretations Committee and IASB and has encouraged the development of an appropriate accounting standard for crypto-assets. 

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    Keywords: International, Securities, Banking, Accounting, Crypto-Assets, Financial Stability, Prudential Treatment, Regulatory Gap, FSB

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