and other illegal activities, and some rather spectacular incidents of theft and fraud have occurred. and we have seen significant financial risk, given the volatility and illiquidity of the assets. authorities should work toward a coherent set of policies for crypto assets that is aligned internationally. this strategy will need to cover risks in both cash and derivatives products, as well as in the related ecosystem. the canadian securities administrators ( csa ) launched work on offerings of crypto assets last year, noting that — where appropriate — they are treating these as securities. 21 i just returned from the g20 meetings in buenos aires and am pleased that the g20 is increasing its focus in this area, given the global nature of these products. 22 18 see i. foucher and k. gray, “ exchange - traded funds : evolution of benefits, vulnerabilities and risks, ” bank of canada financial system review ( december 2014 ) : 37 – 46. 19 these etps formed part of a larger “ short vol ” trade, which before early february some estimates put as high as us $ 2 trillion, and which allowed retail investors to access complex and leveraged trading strategies that were typically done only by sophisticated investors. see box 3 in the bank of canada financial system review ( november 2017 ) : 14. 20 see box a in bank for international settlements, “ international banking and financial market developments, ” bis quarterly review ( march 2018 ). for more information, see csa staff notice 46 - 307 cryptocurrency offerings ( august 24, 2017 ). see also committee on payments and market infrastructures markets committee, “ central bank digital currencies, ” bank for international settlements ( march 2018 ). for more information, see the g20 ’ s march 20 communique. my bottom line here is that we need a sharpened focus on consumer and investor protection, and market integrity. these are foundational elements of a sound financial system because they support trust. plan for when things go wrong the last area i want to highlight is readiness : we need to be prepared for when things go wrong. it is impossible to be rid of all risks, and undesirable as well. a modern economy advances because people work hard and are willing to stick their necks out. that means that some risk will materialize. that said, the system should be able to withstand some failures without imposing huge costs on those who did not take the risk in the first place. we have made a lot of

progress in a number of areas, but more needs to be done. for example, we identified the financial institutions and fmis that could have outsized impacts on the financial system if they failed, and we are subjecting them to more stringent regulation and supervision, including recovery and resolution planning. 23 central banks and international policy organizations have also worked to develop earlywarning indicators of risks to the global financial system. 24 while these are helpful as a starting point, we need to recognize their limitations, particularly if they rely on deviations from historical trends or threshold values. that is why it is important to push the analysis further to properly gauge the risk. stress tests are an excellent way to help us understand what could happen if financial institutions were subject to adverse events, such as a steep house price decline or a brexit vote. they also provide practical information about what might be needed to withstand and recover from these events. the bank of canada works with other organizations, such as osfi and the international monetary fund, to conduct regular stress - testing exercises of financial institutions and to improve our modelling techniques. 25 the unfinished business here is that models used for stress testing capture mainly firstround effects, with limited ability to identify spillovers that we know can end up being even more important. for example, while the bank ’ s current framework does capture second - round effects that could come from interbank exposures and asset fire sales, it could be improved. the bank, and others who conduct stress tests, could introduce the basel committee on banking supervision has developed quantitative metrics for identifying global systemically important banks ( g - sibs ) and a set of principles ( no quantitative metrics ) for assessing domestic systemically important banks ( d - sibs ) : “ global systemically important banks : updated assessment methodology and the higher loss absorbency requirement ” ( july 2013 ) and “ a framework for dealing with domestic systemically important banks ” ( october 2012 ). for example, see bank for international settlements, “ early warning indicators of banking crises : expanding the family ” ( march 2018 ) ; and t. duprey and t. roberts, “ a barometer of canadian financial system vulnerabilities, ” bank of canada staff analytical note no. 2017 - 24 ( december 2017 ). 25 k. anand, g. bedard - page and v. traclet, “ stress testing the canadian banking system : a system - wide approach, ” bank of canada financial system review (