The Financial Stability Board (FSB) published a report that looks at the financial stability, regulatory and governance implications of the use of decentralized financial technologies.
Specifically, the report focuses on technologies that may reduce or eliminate the need for intermediaries or centralized processes that have traditionally been involved in the provision of financial services. This typically involves the decentralization of decision-making, risk-taking or record-keeping. There are also examples of decentralization in payments and settlement, capital markets, trade finance, and lending.
It was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka that took place June 8-9.
The report says the application of decentralized financial technologies could result in more financial stability. It may lead to greater competition and diversity in the financial system and reduce the systemic importance of some existing entities. In other ways, however, the use of decentralized technologies may entail risks to financial stability. These include the emergence of concentrations in the ownership and operation of key infrastructure and technology, as well as a greater degree of risk-taking. Further, uncertainties around the determination of legal liability and consumer protection may impact public trust in the financial system.
A more decentralized financial system may reinforce the importance of an activity-based approach to regulation. Also, certain technologies may challenge the technology-neutral approach to regulation taken by some authorities.
The FSB brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. It is chaired by Randal Quarles, vice chairman for supervision, US Federal Reserve. Klaas Knot, president, De Nederlandsche Bank, is the vice chair. The FSB Secretariat is located in Basel, Switzerland.
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