FSB publishes report on global stablecoins

Global stablecoins are defined as a “specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale.” The report and its recommendations are addressed to authorities at a jurisdictional level and focus on privately issued GSCs predominantly intended for retail use. The main area of focus is the risk of financial instability that the mass-adoption of GSCs could create, and how to mitigate this through effective and comprehensive regulation.

Earlier in the year, in line with a G20 mandate to examine regulatory issues raised by GSC arrangements, the FSB held a public consultation with a variety of stakeholders and conducted a detailed analysis of the risks to financial stability raised by GSCs. Amongst other issues, the responses to the consultation highlighted that if a GSC were to be widely adopted as a store of value (akin to how gold has been historically used), even a moderate variation in the value could cause significant fluctuations in users’ wealth. Furthermore, if a GSC were to be widely used for international payments, any operational disruption could result in significant impacts on economic activity and the functioning of financial systems. Also identified were other risks associated with data privacy & protection, compliance with anti-money laundering and terrorist financing rules, cyber security and tax evasion. These further issues are beyond the scope of the report but must be simultaneously examined in order to create an appropriate and comprehensive regulatory framework for GSC arrangements.

Whilst acknowledging that no existing operational stablecoins or crypto-assets have currently reached a scale that could be classed as ‘global’ and pose risks to financial stability, the FSB states that those currently in development could rapidly scale-up if offered to a large customer base. As such, the report proposes 10 high-level recommendations to address the regulatory, supervisory and oversight challenges raised by GSC arrangements and provides a timeline of actions in order to create a roadmap for the development of a coherent international approach to regulation and supervision of these arrangements.

In a wider context, the effective regulation and supervision of GSC arrangements is seen as a key step in the ongoing work to cross-border payments faster, cheaper, more transparent and more inclusive. As such, the FSB has committed to the following actions as a key ‘building block’ in its roadmap to enhancing cross-border payments. The roadmap was commissioned by the G20 and ‘Stage 3’ was published by the FSB simultaneously to the report on GSC arrangements.

1. International standard-setting work in accordance with the FSB report on GSC arrangements is to be completed by December 2021;
   
   
2. National authorities are to establish cooperation arrangements to handle cross-border GSC arrangements, consistent with international standards and principles by December 2021;
   
   
3. National authorities are to establish or adjust regulatory, supervisory and oversight frameworks consistent with the FSB recommendations and international standards and guidance by July 2022; and
   
   
4. The FSB, in consultation with other standard-setting bodies, is to review the implementation of the recommendations, identify potential gaps and update them or adapt international standards by July 2023.

Should you have any questions about the above, please do not hesitate to contact one of the members of the Bird & Bird global payments team.

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