The Financial Stability Board‘s (FSB) Randal K. Quarles has touched on the need for a global regulatory framework for cryptocurrencies in a speech delivered in Hong Kong February 10th at the Bank for International Settlements Special Governors Meeting.
Quarles is the Vice Chairman for Supervision on the Board of Governors of the Federal Reserve System.
He also chairs the Financial Stability Board (FSB), a G20-endorsed “international body that monitors and makes recommendations about the global financial system,”after taking over from Bank of England Governor Mark Carney.
Quarles began the speech, “Charting a Course for the Financial Stability Board Remarks,” by praising global regulators for pulling the global economy out of its last crisis:
“My predecessor…guided the FSB for the last seven years along a path that was formidably challenging. The Global Financial Crisis had exposed fault lines in the financial system that had to be addressed immediately, comprehensively, and vigorously. The body of post-crisis regulation that has resulted, though it involved the energy and efforts of a kaleidoscopically varied host of standard setters, regulators, and central banks–including all the institutions in this room–was nonetheless accomplished under the aegis and at the instigation of the FSB. It was a tour de force of orchestration, and it has unquestionably made the financial system safer and more resilient.”
Quarles said that re-stabilizing reforms have now mostly finished:
“Today the post-crisis reform agenda has been largely completed. Basel III is final, the largest global banks have substantially more capital and liquidity, over-the-counter derivatives markets are safer, and steps have been taken to address the risks of too-big-to-to fail institutions.”
This has allowed regulators to begin addressing anticipated risks:
“Through greater monitoring and policy measures, the FSB is addressing risks from non-bank financial intermediation.”
The FSB reputation and the soundness of its policies are maintained by the board’s willingness to consult affected industries, and the FSB under Quarles remains committed to this, he said:
“The FSB must maintain its legitimacy in order to be effective, and to do that we have to work hard to hear from all relevant parties when deliberating. What’s more, we have to do so publicly and methodically. Everyone around the world should understand that we only make recommendations once we have gathered and considered all points of view. Process is important, and good process leads to good substance.”
Quarles then emphasized the importance and impact of the FSB’s work:
“In fostering global financial stability, the actions of the FSB have the potential to affect the global economy and financial system in important ways. Success in promoting global financial stability should benefit everybody, through more sustainable and stronger economic growth. At the same time, financial stability policy will also affect institutions and markets beyond the FSB’s membership. Recognizing the wide-reaching effects of its work, the FSB must seek input from a broad range of stakeholders, each of whom brings a different perspective to the issues under consideration.”
In addition to consultation, this work involves, “…assessing and mitigating vulnerabilities, especially in the nonbank sector.”
Quiet factors now could prove disturbing in the event of “shocks” said Quarles:
“The FSB’s work has a natural flow. We strive to identify vulnerabilities in the financial system that could threaten financial stability when a shock hits. When a vulnerability has been identified, we examine possible policy responses…Finally, when enough time has passed for the enacted policies to have had measurable effects, we study those effects.”
Quarles said the “explosion” of financial reform work induced after the 2008 crisis has improved regulators’ abilities to head off risk at the pass:
“The crisis led to an explosion of work in this area aimed at improving the ability of authorities to identify financial vulnerabilities in order to be able to take appropriate action in a timely fashion. I trust that the framework will harness the strength of the broad and diverse membership of the FSB, that it will be forward looking, and that it will be flexible enough to handle a financial system that will continue to evolve over time.”
Quarles cited cryptocurrencies in particular as on the radar:
“This will not be easy–developments like the emergence of crypto-assets may challenge any framework–but that makes the goal of a robust framework all the more important.”
He ended by promising a robust regulatory approach:
“We will prepare for the next crisis by making sure that our framework to assess vulnerabilities to financial stability is state of the art and remains so going forward.”
According to the TASS news agency, however, the head of Russia’s VTB bank, Andrei Kostin, recently told an audience at an education event that:
“(T)here is no mechanism for regulating the cryptocurrency market…”