In his final public remarks as Chair of the Financial Stability Board (FSB), Klaas Knot delivered a stark warning about the increasing risks posed by cryptocurrency to the global financial system. Speaking at a regulatory conference in Madrid on Thursday, Knot said that the financial world may be approaching a critical tipping point as the boundaries between crypto and traditional finance continue to blur.
“We May Be Approaching a Tipping Point”
The FSB has traditionally maintained that crypto assets do not yet pose a systemic risk to financial markets. However, Knot suggested this assessment may soon change. “Recent developments suggest we may be approaching a tipping point,” he stated.
A key area of concern is the role of stablecoins, which have increasingly become a bridge between decentralized finance and the traditional monetary system. Knot emphasized that many stablecoin issuers now hold large volumes of U.S. Treasuries, making them a potential pressure point in the financial system. “This is a segment we must monitor closely,” he cautioned.
ETFs and Retail Exposure Raise Concerns
Knot also addressed the accelerated entry of retail investors into crypto markets, particularly through exchange-traded funds (ETFs). With the launch of multiple spot ETFs for assets like Bitcoin and Ethereum, the barriers to retail participation have dropped significantly, he noted.
“The interlinkages with the traditional financial system continue to grow,” said Knot, pointing out that the convenience and legitimacy provided by ETFs could amplify risks if the underlying crypto markets experience stress.
A Call for Evolving Regulation and Global Coordination
Knot acknowledged that crypto’s popularity stems in part from long-standing inefficiencies in cross-border payments, but stressed that regulatory frameworks must evolve in parallel with the technology.
“The crypto ecosystem will continue to evolve and so must our regulatory frameworks,” he said. He emphasized that countries are already developing their own sets of rules but warned that disjointed regulation could lead to loopholes and arbitrage.
“The FSB’s recommendations offer a common foundation,” he continued. “This is especially important given the inherently cross-border nature of crypto.”
A Broader Vision of Financial Stability
Beyond crypto, Knot addressed additional systemic challenges including non-bank financial intermediation (NBFI) and climate-related financial risks. He warned that these issues are similarly transnational and require collective global action.
“Financial stability is an international public good,” Knot concluded. “Every single issue I have mentioned today NBFI, banking, crypto, payments, climate they all cross borders. And so must our response be.”
Changing of the Guard
Klaas Knot’s tenure as FSB Chair will officially end on June 30, 2025. He will be succeeded by Andrew Bailey, the current Governor of the Bank of England. Bailey is expected to continue leading the FSB’s efforts on regulatory coordination in the face of fast-evolving financial technologies.
