FSOC: ‘Crypto No Threat to Financial System… Yet’

FSOC: ‘Crypto No Threat to Financial System… Yet’

The Financial Stability Oversight Council (FSOC) has published its 2018 annual report identifying specific and systemic risks to the U.S. financial system. The report finds no threat posed by crypto to American financial stability.

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FSOC Sees No Threat From Crypto

Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Treasury’s independent FSOC publishes an annual report pursuant to its three goals of identifying risks, promoting market discipline, and responding to emerging threats.

On digital assets, its 2018 report flatly stated that:

“… digital assets do not presently appear to pose a threat to the stability of the financial system.”

The report is less certain of the role cryptocurrency may play in the economy and financial system, however, were it to become more widely used:

“… the value and uses of digital assets could grow rapidly, which would substantially increase their importance to the financial system.”

Council Recognizes New Challenges Posed by Digital Assets

The council does suggest cryptocurrencies pose a challenge to the financial environment, as with all new products and developments. In late 2017, the Council formed a working group on digital assets.

The working group functions to explore issues relating to crypto and blockchain technology and evaluate any:

“… potential cybersecurity and operational risks related to these assets, illicit activity undertaken with digital assets…”

The Council warns of the use of cryptocurrencies in crime, though at least concedes its hands have been weakened by the borderless nature of crypto. The FSOC specifically points to so-called privacy currencies and their use in crime:

“Payments made using digital assets pose serious money laundering and other illicit financing risks that must be assessed and aggressively countered by U.S. and non-U.S. regulators. The growing use of digital assets–including the development of new assets designed to enhance anonymity–to facilitate illicit activity, including cybercrime, fraud, extortion, drug trafficking, money laundering, tax evasion, and other crimes, poses material risks.”

No Risks… Yet

Noting that the CFTC and the SEC have been regulating many of the activities in the digital asset space, it appears the FSOC is not too concerned about the role cryptocurrencies play in the U.S. economy given they represent less than one percent of the total market capitalization of U.S. stocks. Were cryptos to become more popular, then, that position may change.

Have your say. Does crypto pose a risk to financial stability?

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