The Financial Stability Board (FSB) today released a document in response to the G20 call of June 2019 to review regulatory issues regarding the Global Stable Coin. In this document, you will find a comprehensive study that covers all aspects like regulation, risk and issues for cross-border cooperation and coordination.
While the FSB in the introduction acknowledges the potential that GSCs can contribute to the development of new global payment methods, it also highlights possible risks for regulators and a number of challenges. Systemic risks to the financial system are the biggest problem, and the FSB also highlights significant risks to the real economy as a result of domestic currencies replacement.
The FSB divides and sees risks in the following areas:
- challenges for financial stability
- consumer and investor protection
- data privacy and protection
- financial integrity, including compliance with rules governing anti-money laundering and countering the financing of terrorism and proliferation (AML/CFT)
- tax evasion
- fair competition and anti-trust policy
- market integrity
- sound and efficient governance
- cyber security and other operational risks
- the safety, efficiency and integrity of financial market infrastructures (FMIs)
- resolution and recovery considerations
The Council notes that while there are currently no functional stable carbons that could pose a risk, some are already under development and can thus acquire a large user base through rapid adaptation.
In the context of financial stability, the FSB Board sees risks in possible fluctuations in the wealth of users, especially in emerging economies (EMDE) where these fluctuations may be significantly higher than in advanced economies. There are also concerns about possible operational disruption of the agreements, or the technical ability to handle all transfers, so as to avoid downtimes and the consequent impact on real economic activity.
FSB adds that confidence in GSC will depend on the transparency and sufficient liquidity of these reserve assets.
As part of FSB regulation, it conducted a survey with FSB and RCG members. The survey covered questions about current approaches to regulations and stable coin classifications. The survey completed with 51 jurisdictions (25 FSB / 26RCG)
The findings show that most of these jurisdictions currently do not have regulatory regimes for crypto-assets and stable coins.
They do, however, have existing regulatory and supervisory bodies that can also focus on these assets over time.
“Most respondents note that stablecoins could be classified under more than one regulatory category, and that the classification could change as the nature and use of a stablecoin evolves.” stated FSB
Regulatory regimes are therefore dependent on particular design features and characteristics of the stablecoin.
“The application of existing regulatory regimes is therefore subject to a case-by-case assessment. For instance, whether a “stablecoin” qualifies as e-money may depend on the nature of the claim of a stablecoin holder against the stablecoin issuer or its assets.” stated FSB
After reading the whole document, it is not easy to determine the clear position of the FSB on stable coins. On the one hand, there are many criticisms and risks, but on the other hand, we see an effort to classify and build a functioning environment.
If you are interested in the whole 62 page study you can read it here.
Also read our article that responds to the current situation and the growing interest in the creation of digital currencies by the world’s economies. “Revolution of Digital Currency coming, thanks to the COVID-19 pandemic”