Global Financial Stability Board Recommends Rules for Stablecoins

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April 16, 2020 – The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system has outlined recommendations to central banks with regards to stablecoins. One such recommendation is the outright prohibition of them if they cannot meet the requirements for oversight. FSB said these recommendations will be presented to the G20 countries and will reference major stablecoins like USDT, USDC, and DAI.

While the FSB agrees that stablecoins can enhance the efficiency of financial services, it may also generate risks to financial stability if they are adopted at a significant scale. Still, the Board said if stablecoins are widely adopted, it could “become systematically important across many jurisdictions, including as a payment infrastructure”.

The 10 recommendations outlined are based on G20’s request to the FSB to examine regulatory issues raised by “global stablecoins”. The recommendations are focused on financial regulatory and supervisory issues relating to privately issued “Global Stablecoins” intended for retail use.

Financial Stability Board Recommendations on Global Stablecoins

  1. Authorities should have the necessary powers and tools to comprehensively regulate, supervise, and oversee global stablecoins (GSC).
    1. And if necessary, prohibit effectively the activities being conducted and services being offered to users in or from their jurisdiction and the attendant risks that these services and activities may pose.
    2. Authorities should have the ability to mitigate the risks associated with or prohibit the use of certain or specific stablecoins in their jurisdiction where these do not meet the applicable regulatory, supervisory, and oversight requirements.
  2. Regulatory requirements to global stablecoins must be applied on a functional basis and proportionate to their risks.
  3. Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication and consultation.
  4. Authorities should ensure that GSC arrangements have in place a comprehensive governance framework with a clear allocation of accountability for the functions and activities within the GSC arrangement.
  5. GSC arrangements must have effective risk management frameworks in place especially with regards to reserve management, operational resiliency, cybersecurity safeguards and AML/CFT measurements, as well as ‘fit and proper’ requirements.
  6. Authorities should ensure that GSC arrangements have in place robust systems for safeguarding, collecting, storing, and managing data.
  7. Authorities should ensure that GSC arrangements have appropriate recovery and resolution plans.
  8. Authorities should ensure that GSC arrangements provide to users and relevant stakeholders comprehensive and transparent information necessary to understand the functioning of the GSC arrangement, including with respect to its stabilization mechanism.
  9. Authorities should ensure that GSC arrangements provide legal clarity to users on the nature and enforceability of any redemption rights and the process for redemption where applicable.
  10. Authorities should ensure that GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing any operations in that jurisdiction and construct systems and products that can adapt to new regulatory requirements as necessary.

The FSB also said fully permissionless ledgers or similar mechanisms could post challenges to accountability and governance and has implied that only permission-based stablecoins are allowed to operate.

The FSB recommends that authorities will have the ability to require a GSC to be governed fully – successfully meeting regulatory, supervisory, and oversight requirements and other approvals like licenses and regulations. Fully decentralized systems might have problems with this given the very nature of how decentralized systems work.

The FSB is inviting comments on their document by July 15, 2020. Responses should be sent to fsb@fsb.org.

FSB Document Here.

This article is published on BitPinas: Global Financial Stability Board Recommends Rules for Stablecoins

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