FSB flags gaps in stablecoin regulation

Implementation of the recommendations for global stablecoin regulation remains at an early stage, with gaps and fragmentation persisting. These conclusions are contained in the new report of the G20 Financial Stability Board (FSB).

In October 2020, the advisory body responsible for financial regulation formulated ten recommendations for a common international approach to the regulation of stablecoins. A year later, the FSB noted slow progress in implementing them.

“Effective international cooperation and coordination are crucial. Differences in regulatory classifications and approaches at the jurisdictional level can lead to risks of regulatory arbitrage and market fragmentation,” the document says.

The recommendations range from granting relevant authorities oversight functions over global stablecoins to an “all-encompassing governance framework,” since they are tied to fiat currencies.

IOSCO and the Basel Committee on Banking Supervision described the coverage as “incomplete” for several aspects by the various countries that have begun regulating stablecoins, according to FSB analysts.

The report calls for further consideration of issues such as the criteria for global stablecoin status, investor protection, and requirements for issuers, custodians and wallet providers. 

Analysts proposed adding buyback rights, cross-border cooperation and coordination between jurisdictions, as well as mutual recognition, to the scope of the recommendations.

The FSB plans to complete standards development by July 2023.

In October, the Bank for International Settlements published a report with guidance on the alignment of stablecoin mechanisms with international standards for payment, clearing and settlement systems.

Earlier, the organization noted that many central banks study digital assets from a regulatory perspective, but their greatest interest lies in stablecoins.

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