Global regulatory coordination critical for stablecoin: FSB

Integrity of financial systems at risk from stablecoins, says Financial Stability Board

Financial Stability Board chair Randal Quarles                                 
Financial Stability Board chair Randal Quarles – Photo: FSB
                                

Without global teamwork to regulate so-called stablecoins, the integrity of the financial system is at risk, according to an organisation representing 24 economies. 

A report published on 7 October by the Financial Stability Board (FSB), Regulation, Supervision and Oversight of  ‘Global Stablecoin’ Arrangements, said the emergence of a global-standard stablecoin would pose greater risks than existing stablecoins.

Effective international regulatory cooperation and coordination are critical, according to the FSB report. 

Stablecoins are not widely used for mainstream payments, but are a “bridge” between traditional fiat currencies and other crypto-assets that are held or traded for speculative purposes. 

Market capitalisation of stablecoins reached USD$123bn (£90.1bn) by September. Tether is the largest of the category, with a $68bn market capitalisation. 

The report said concerns needing to be addressed include conditions for qualifying a global stablecoin standard, investor protection, requirements for wallet providers, redemption rights and cross-border and cross-sectoral cooperation.

Without a robust plan, the FSB said, more retail investor participation could lead to financial instability issues and an erosion of trust in the system.

“Comprehensive and effective supervisory, regulatory and oversight frameworks will also need to cover important issues such as anti-money laundering, counter financing of terrorism, data privacy, cyber security consumer and investor protection and competition,” the report said.

New rules or adaptations?

While some jurisdictions are looking at new rules and regulations, others have amended existing rules and regulations to adapt to stablecoins. The board warned that a patchwork approach could result in “regulatory arbitrage and harmful market fragmentation”.

The FSB said the European Commission’s proposed regulation on markets in crypto-assets is working its way through European Union legislatures. The UK government is considering whether to require firms marketing to the UK to reside in the UK and be authorised in the UK. In the US, the President’s Working Group on Financial Markets is preparing a report on the benefits and risks of stablecoins. 

Between January 2022 and July 2023, the FSB will conduct a further review with standard-setting bodies.

The FSB, launched in 2009 by the heads of G20 member countries, promotes the reform of international financial regulation and supervision. It is based at the Bank for International Settlements in Basel, Switzerland, and is chaired by US Federal Reserve vice-chair Randal Quarles.

Further reading: US discusses stablecoin review and crackdown

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