FSB Publishes Global Stablecoin Regulation Recommendations

The Financial Stability Board (FSB) has published an executive summary of its recommendations for the regulation, supervision and oversight of global stablecoins, observing that while they have the potential to enhance the efficiency in financial services, they “may also generate risks to financial stability”.

The report, which is part of the FSB’s work to meet the mandate imposed by the G20 to investigate the impact of stablecoins, observes that a widely-adopted stablecoin, that could potential be implemented across multiple jurisdictions, a “global stablecoin” (GSC), could become systemically important.

“The activities associated with GSC arrangements and the risks they may pose can span across regulatory regimes for banking, payments and securities/investment both within jurisdictions and across borders,” the FSB observes. “While such financial stability risks are currently limited by the relatively small scale of these arrangements, this could change in the future.”

The report notes that the term “stablecoin” has no universally agreed legal or regulatory definition and “it is not intended to imply that’s its value is stable” – it has merely come into use if regulatory circles because the markets themselves use the term. With that in mind, the FSB says that its definition of a stablecoin is a cryptoasset that aims to maintain a stable value relative to a specific assts, or a pool or basket of assets.

It defines a “stablecoin arrangement” as one that combines a range of functions and related activities, that aims to maintain that stable value relative to the associated asset(s). A GSC is defined as a stablecoin “with an existing or potential reach and use across multiple jurisdictions and that could become systemically important in and across one or many jurisdictions, including as a means of making payments and/or as a store of value.”

When determining whether a stablecoin qualifies as a GSC, the FSB says, aside from its use in multiple jurisdictions, the coin’s potential to disrupt cryptoasset and the more broader financial system should be taken into account – namely, would an operation or financial failure have broader implications?

“Relevant additional features can be developed on the basis of criteria that are often considered in determining the need for, or degree of, regulation, supervision and oversight of financial market infrastructures and global systemically important banks,” the FSB states. “In this context, it matters whether a stablecoin has the potential to expand reach and adoption across multiple jurisdictions and to achieve substantial volume.”

In terms of the specific recommendations, the FSB says authorities should have, and utilise, the appropriate powers and tools to effectively oversee a GSC operating in their jurisdiction. They should also apply “comprehensive and effective” regulatory and supervisory requirements consistent with international standards.

There should be cross-border cooperation to ensure requirements complement each other across jurisdictions, and authorities should require that any GSC has in place, a disclosed and comprehensive governance framework, as well as “effective” risk management frameworks to address material operation, cyber and anti-money laundering risks.

Data should be stored in a “robust” framework to enable its effective storing and safeguarding, as well to help timely and accurate reporting to authorities as an when necessary and appropriate. GSCs should also have appropriate recovery or resolution plans.

The recommendations also call for higher transparency from GSC issuers, and GSC arrangements should provide a robust legal claim to all users against the issuer or underlying reserve assets to help guarantee timely redemption.

The final of the 10 recommendations states that authorities should require GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing operations in that area. Existing providers should also adapt to new regulatory requirements as necessary.