The International Monetary Fund said Brazil’s crypto asset market, particularly U.S. dollar-pegged stablecoins, has expanded rapidly since 2017 and now requires closer oversight as cross-border crypto flows grow faster than traditional capital flows.

In its Financial System Stability Assessment released Thursday, the IMF said stablecoins have been a key driver of the strong growth in Brazil’s crypto asset market. The report said cross-border crypto flows have “been steadily increasing” and that stablecoin purchases are two to three times more sensitive to global shocks than traditional portfolio investment or foreign direct investment flows.

The IMF said Banco Central do Brasil (BCB) has already taken steps to regulate crypto asset service providers, but gaps remain in areas including customer asset protection, stablecoin issuance rules, and anti-money laundering (AML) and counter-terrorist financing (CFT) compliance. “The crypto-asset market in Brazil is large and fast-growing, and increasingly interconnected with the traditional financial system,” the report said, underscoring why regulators are focusing not only on trading activity but also on the institutions and payment channels that connect crypto to the broader financial system.

In April, the central bank published Resolution BCB No. 561, updating rules for electronic foreign exchange (eFX) providers and prohibiting the use of digital assets for certain international payment and transfer services. Under the revised framework, payments and receipts between eFX providers and foreign counterparties must be conducted through foreign exchange transactions or through movements in non-resident Brazilian real accounts.

Related: BIS warns stablecoins could weaken capital controls in emerging markets