FSB publishes consultation on stablecoin regulatory challenges
The Financial Stability Board (FSB) has published 10 high-level recommendations to address what it calls “the regulatory, supervisory and oversight challenges” of stablecoins for consultation.
According to the regulatory body, stablecoins have the potential to enhance the efficiency of financial services but also pose risks to stability.
The FSB’s recommendations call for regulation, supervision and oversight that is “proportionate to the risks,” and stress the need for “flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination and information sharing arrangements.”
Among the guidance laid out in the paper is a call for a unified approach to cryptocurrency regulation, in an effort to reduce the patchwork of laws, bills, and statutes that surround virtual currency across the world.
The consultation paper is a response to the call from the G20 to examine regulatory issues raised by the potential creation and proliferation of stablecoins and central bank-backed digital currencies following Facebook’s creation of the Libra Association.
Stablecoins are cryptocurrencies designed to minimize the volatility that can occur among other digital currency types. This is typically achieved by pegging them to an existing currency or commodity via a fixed exchange rate.
The largest stablecoin on the market right now, Tether, has a market capitalisation of around $6.3 billion, while the market capitalisation of Bitcoin currently sits at $117 billion.
Regardless of the technology used, the FSB paper argues, firms should face the same rules as other businesses which present the same level of risk to financial stability.
“Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by global stablecoins,” the FSB writes.
Operators of stablecoins must be operationally resilient, have safeguards against cyberattacks, and have robust systems in place to prevent money laundering and terrorist financing.
The paper has been delivered to G20 finance ministers this week, and features a public consultation period which closes on 15 July 2020.
Final recommendations, incorporating feedback from the public consultation, will be published in October 2020.