China’s Central Bank Calls for Global Crypto Oversight to Enhance Financial Regulatory Safety
The Financial Stability Report 2023 recently released by the People’s Bank of China (PBC) has placed a greater emphasis on crypto assets. The report highlights the exponential growth of the global crypto market and stresses the need for consistent oversight. It supports the principle of “same business, same risks, same supervision” to address regulatory gaps and avoid fragmented oversight.
The PBC report calls for international cooperation in regulating crypto assets and emphasizes the importance of a unified global approach to supervision. France’s recognition of the risks associated with crypto assets further strengthens the argument for stronger international coordination in regulatory matters.
However, the report also raises concerns about insider control, asset concealment, and the security of blockchain-off-chain data related to crypto assets. Despite their limited integration with traditional financial systems, the increasing volatility and speculative nature of these assets have raised concerns since 2022.
To address these challenges, the report outlines a comprehensive strategy with six key components: access, internal control, operational aspects, governance, exit strategies, and enhanced supervision. It examines the governance models used in decentralized finance (DeFi) and warns of potential global financial threats posed by transparent cross-border transactions.
Although crypto assets account for only 1% of the global financial system, the report emphasizes the urgent need for regulatory restructuring and market reforms. It proposes overhauling the registration system to empower regulatory bodies to manage market risks through a calibrated “negative feedback” mechanism.
The PBC report identifies risks in crypto assets, citing recent incidents such as the collapse of FTX and fraudulent activities in the DeFi sphere. It emphasizes the need for preemptive measures against maturity mismatch, excessive leverage, and risks of procyclicality. Recognizing the vulnerability of crypto assets to cyber threats, the report underscores the necessity for a collaborative international framework to effectively manage the inherent cross-border characteristics and address potential security vulnerabilities.
Overall, the PBC’s comprehensive report maintains a strict stance on regulating crypto assets. It prioritizes international cooperation and a restructured regulatory framework to mitigate risks and safeguard the global financial ecosystem.