BIS Calls For Systemic Regulation Amid Fears of Financial Instability

The Bank for International Settlements, otherwise known as the BIS has issued a warning about the crypto industry posing serious threats to financial stability and as a result, has called for “systemic regulation”.

The BIS narrates how risks have been shown in the frequent price crashes, albeit only in the crypto ecosystem for now. In continuation, the group also reveals that it is yet to confirm if these risks will only be limited to the crypto space or could even spill over to the traditional financial institutions.

It is in light of this uncertainty, that the BIS then urged that the possibility of a spillover should not be overlooked at all. Because as history has always proven, anything growing at an exponential rate is likely to spiral out of control, therefore would require very close monitoring.

DeFi, The Major Worry of The BIS

Meanwhile, a large part of the warnings by the BIS was focused on the fast-growing decentralized finance (DeFi) space.

According to the group, the DeFi system does not only encourage first-order money laundering, there are also investor projection worries, even as DeFi continues to show significant financial vulnerabilities.

The BIS also took a swipe at stablecoins, claiming that they are “subject to classic runs.”

Recall that recently, both the International Organization of Securities Commissions IOSCO and the BIS jointly stated that stablecoin issuers must be regulated like banks. In other words, traditional payments rules must apply to stablecoins.

Meanwhile, the clamor for stablecoins to be regulated has been long in existence. In 2019, G7 insisted that stablecoins are a risk to global financial stability.

DeFi and stablecoins are not the only aspects of the crypto industry that worry the BIS though. Bitcoin is also a problem.

In June, the Bank also expressed its displeasure with the leading cryptocurrency for its role in money laundering and how its mining activities consume energy.