A Fireside Chat with Martin Moloney, Deputy Secretary General, Financial Stability Board

and um and Martin Muloney is the is the is the deputy uh secretary general of the FSB and Martin is here because well I mean he's very knowledgeable and a and a good speaker but uh today it's particularly appropriate because um the ASIS has just uh published the peer review uh of um uh how jurisdictions are doing um with respect to the FSB uh standards on uh on crypto. So we're going to kick off with Martin first of all then we'll move on to uh Maha on uh Nexus. Then we actually have some other very very important projects that are going to be uh you know showcased today. And I'm very happy that we have Victor Long from the Hong Kong Monetary Authority who will tell us about uh you know um how you can tokenize government securities and how you can just tokenize the securities ecosystem more generally. It's very much um uh a practical implementation of of what the BIS wrote about in the uh latest annual economic report and we're very much looking forward to that.

And of course we have Promissa uh and I think uh Patrick Chang is uh is going to Thank you Patrick. So uh Patrick is gonna talk about uh Promissa and then funds chain. Have I left something out?

Uh and of course the panel. How can I forget the panel? So without further ado, I'm going to hand over to Martin. So please give him a big round of applause. [applause] So um to start off with uh as as Han mentioned Martin is the deputy uh secretary general of the financial stability board.

Um prior to taking on that role he was actually the secretary general of IOSCO our you know the international organization of securities commissions a partner institution and a member of the of the FSB as well. Um and the secretary of IASCO is in Madrid, so one of the ones that's uh that's uh not in Basil, but uh but close by in a and uh he was previously um director general of the Jersey Financial Services Commission and he's had senior posts at the Central Bank of Ireland, which is of course an integrated central bank, but also securities market regulator importantly um and also on the investment management uh standing committee of ESMA, the European Securities uh market uh agency as represent Ireland, the board of ESMA. He's also spent 10 years at the Irish Department of Finance and began his career in the banking sector in the UK. So, we're very glad to be able to um have Martin with us and to talk about the uh new peer review on crypto which dropped just this morning, so at 4 a.m.

Washington time for those who were up early and uh keen to hear all about what the FSB has to say. Um so, we'll uh we'll hear all about that uh shortly. But before we get into the um findings of of this very timely report, um I wanted to ask if maybe you could say a few words here about you know what the FSB is. We have of course a wide audience here. We bring together people from the public sector, private sector, academia, uh civil society.

So of course it's good to you know set the stage and uh and understand what this is. Um and maybe what role you're playing in the crypto landscape and I'll emphasize at the outset. So FSB is the Financial Stability Board. It's not the uh Federal uh Security Service of the Russian Federation. That's a different FSB.

Very frequent confusion. Uh but uh yeah, we're talking about the Financial Stability Board. So Martin, over to you.

Thanks very much, Don. Um yes. Uh where do you start on the FSB? I I guess you got to start in 2008. There was a kind of a realization that dawned on the G20 and the G20 community that financial markets don't stabilize themselves.

They don't keep stable. You have to stabilize them. You have to constantly pay attention to how they're developing and evolving and innovation in the sector in order to ensure that uh they don't they do more good than harm, let's say. in in in the world. And to that end, uh the G20 brought together ministries for finance, central banks, regulators from the top jurisdictions around the around the world to act as a sort of uh uh policeman some people like to call them in relation to financial stability.

And we've been working away for the last 15 years working with all the different semi semi uh uh standard setting bodies and uh with the major jurisdictions to develop sets of recommendations that cover just about every aspect of the financial sector in order to try to ensure that it keeps stable and we keep that balance right. Um it's almost inevitable that we would have been asked to look at crypto just as we have been asked to look at AI and other types of innovation that are that are that are going on and our role in relation to crypto. It it's kind of interesting what we did even at a time when a lot of central bankers or a lot of public authorities were skeptical about crypto. The FSB did not take that stance that we should ignore it and it'll go away or that you know any we should put rules in place that will make it impossible. On the contrary, we developed sets of recommendations that actually said, look, in order for this to work well, this is how you should regulate it.

And those are very high level global recommendations with a lot of discretion for jurisdictions as to how they implement them. Um, I think that's probably enough to say about the FSB. Uh, we we keep ourselves busy, let's say, and I we we expect to be kept busy for a long time to come.

Okay. And and concretely maybe you can say so you're you're based in Basil. How many how many staff do you have in the secretariat? How many members?

So we do this with uh magically with a very small number of staff. We got about uh 40 people working for us and um it's quite extraordinary frankly that we are able to do this. But the only way with that number staff the only way we're able to do it is that we pull in expertise from a lot of our members from a lot of our central banks. We occasionally trot down the hall to Hun to say to get some uh economics expertise which is very helpful at times and um we sort of really do our work not just through our own staff but through our membership and through their staff. We run a large range of committees of experts on a whole range of different topics that come up with our recommendations.

Very good. So um good. We'll we'll now move on to the report itself and to the conclusion recommendations. And of course, you know, for all of us, even those of us who work in, you know, the area, there's there's not a day that goes by that we, you know, there's not new developments in uh in crypto and stable coin regulation. And, you know, frankly, it's difficult to keep up even for those of us who are working in the area.

But then, you know, maybe let's let's talk about this. What what is the status of implementation? Where do we stand in terms of regulating crypto assets and stable coins worldwide? So we we tried to take a still photograph of a moving target here because things are changing really fast. But um I think at a very high level there are two messages coming out from this.

The first uh has to do with how seriously are we all taking crypto as we develop the regatory frameworks. Are we assuming that this is or could grow into a significant part of the financial system? If we are assuming that it could and we are encouraging people to think that way then you should put in place a full range of uh of regulatory requirements and regulatory mandates most importantly and frankly as we've looked around the world at all the different uh uh plans that are in place and the new regulatory regimes that are emerging. We found that significant parts of it are missing particularly in relation to financial stability which is our concern obviously but in relation to other matters as well and we detail a lot of that in the report. I think there's a second lesson that's coming out of it as well.

We've done a good deal of analysis in the report of actually how different jurisdictions are doing it. sort of comparative analysis and if I take a step back uh you find uh we've been involved in discussions about market fragmentation for years and very often people blame regulation for causing market fragmentation. Usually that isn't true in large large parts of the traditional financial sector. Fragmentation has been caused by the history of the evolution of the financial sector and the financial markets and regulation has if you like chased the fragmentation mirrored the fragmentation. In this case we have something different.

We have a sector that's grown up as an inherently global sector. It's not jurisdiction specific. There are some variations obviously but it's not. And yet the regulation of this sector as it's emerging and the legislation is frankly as fragmented as the regulation of the traditional sector. So what we're seeing in a unique way is a a real risk emerging of uh fragmentation of the crypto sector and the stable coin sector actually caused by regulations.

So we talk on the one hand about the gaps as I mentioned a minute ago about the the lack of mandates in relation to financial stability and other issues and we talk about the inconsistencies the way in which different jurisdictions are doing this more consistent with the way they they regulate their own traditional financial sector and less uh in a in a globally consistent and coherent way. And for us that raises a significant question. Why are we ending up in that space? And we are asking jurisdictions to look again, think again. A lot of jurisdictions are in the course of developing the regulatory frameworks.

This is really a good time to think. There will come a point where they'll have gone too far and it will be really difficult for them to pull back and to do this in a better way, but it just doesn't look great the way it's being done at the moment.

Very good. And I notic that the report uh covers jurisdictions that are not FSB members. Um so yeah could you talk a little bit about that and you know was participation broad enough to cover the whole crypto market.

So we were really keen to get outside the FSB membership in doing this report. So we did that in two ways. Firstly we invited certain jurisdictions who were not members of the FSB to participate in our in our work and to contribute to the analysis and to provide us with the information and what they were doing. We also did a second thing which was we uh coordinated with IOSCO which has done a separate survey. So in between us we've covered about 40 countries.

We covered about 28 countries covered about 20 countries in their parallel report and we've done a joint note explaining how both reports uh fit together. So that there's a overlap of about 10 countries and then gets you to about 40. And what what what do those 40 cover? They cover almost all the main areas of the world in which uh uh crypto is being substantially used and they cover all the main jurisdictions which are the sources. there were a couple of countries that decided not to uh participate and some of those uh were predictable.

Um let's say El Salvador didn't participate, say shells didn't participate and you know I've done work with international financial centers before and you always do get a range of perspectives within those international financial centers. You get the ones that understand the need to comply and conform and participate in the global system and hit the highest standards and you get the ones that don't. And uh I I don't want to speak for either Al Salvador or the SEL, but perhaps uh the fact that they did not participate reflects an attitude which I think may go back to the past in the sense that there was a view that crypto best develops outside the frame of regulation. Uh I think that's that idea is out of date, but it sort of seems there may be some countries that still have that perspective possibly. I've just been asked this question actually this morning.

One of the more unusual uh uh uh omissions from our work, but it wasn't for the want of trying, is the Dubai International Financial Center. Um I actually don't know why they didn't participate. Um maybe uh somebody should ask them, but uh I hope that doesn't reflect anything about their attitude. Governance arrangements, risk management arrangements, not so good. Uh arrangements in relation to conflicts of interest management, a lot of countries have not really worked that out out really well.

the more high-risk activities and we we know these are high-risisk activities like lending and staking and so on. A lot of jurisdictions have not really thought through what they what they need to do in relation to those. And then you turn to stable coins in particular. We know for example that um when you get stable coin regulations being put in place in different parts of the world, it's fragmenting something that was unified and that creates certain consequences when you start thinking through the issue of the possibility of runs on stable coins and then you think of okay I got a reserve over here and I've got another reserve in another jurisdiction over there. if I get a run, uh, how do I do reserve rebalancing and things like that?

That's actually quite a tough question to answer and there aren't answers in in a lot of the regulatory frameworks. So, frankly, that would worry us quite a bit. It's not an intractable problem. It's not an insoluble problem, but it needs a bit of work to to work it through. It's also a bit surprising that we don't see anything particularly new or original, let's say, coming out of the DeFi world in relation to regulatory reporting or in relation to some of the other things where technology might have been helpful.

Great. So there's homework for for the public sector, but there's also homework for the private sector to uh to contribute to that discussion. So I mean I think again encourage everyone to have a look at the report. It's it's out today. It's it is over 100 pages, but it is a very engaging well-written uh report and it gives you know lays out some very hard-hitting messages.

But Martin, um, if we could, um, you know, what what are the maybe one one thing that you'd like people to take away from this discussion?

So, um, this might seem slightly strange, but I there's a line from Corinthians that that that comes to mind, uh, when when I was looking to that report, which is, it's time to put away childish things. And, uh, this sector really, I think, has to put away childish things. It's time for them to grow up. It's sort of like having a chat with your teenage child. Um there was there is still a view out there in some parts of this sector that um that uh the only regulation that's good regulation is light regulation.

I I think there is an alternative of smart regulation that has not been adopted and uh I don't think the sector can expect legislators to be smart in how they design the regulation of crypto unless the crypto sector itself has been thinking about that and has been making recommendations as to how it can be well regulated rather than lightly regulated. So a little bit of a growing up message if one can say that with with all due respect.

Very good. So we end on on a biblical note and time to put away childish things. Wonderful. Thank you so much Martin for for this great conversation. Um and and for everyone again on fsb.

org you can find find the report itself and and follow up. So I'd like to now hand over to my co-m and we'll she'll take us through to the next sessions. Thank you Martin. [applause]