Systemic controls are measures implemented to manage risks that could destabilize an entire financial system. These controls encompass regulatory policies, oversight frameworks, and operational safeguards designed to prevent the failure of one institution or market segment from cascading throughout the broader economy. In digital asset markets, such controls are being considered to address potential vulnerabilities arising from interconnectedness, liquidity risks, and operational failures. Their aim is to preserve financial stability.
Context
Systemic controls are a frequent topic in news regarding the regulation of large digital asset firms, stablecoins, and decentralized finance (DeFi) protocols. Debates often focus on whether existing financial regulations are adequate or if new frameworks are necessary to mitigate risks posed by the novel characteristics of digital assets. Policymakers are actively evaluating how to implement effective systemic controls without stifling innovation in the crypto space.
The CBI's inaugural crypto enforcement establishes a non-negotiable standard for transaction monitoring, requiring VASPs to immediately audit and fortify systemic AML/CFT controls.
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