The Financial stability board has advised the G20 finance ministers and Central Bank Chiefs of the risks that stablecoins pose to financial stability. The financial stability board, FSB, has given the G20 finance ministers and Central Bank governors a risk assessment of stablecoins. On October 13 FSB chair, Randall Quarles wrote the board a letter which constitutes a section on the “potential financial stability issues from global stablecoins.”
The letter has references to the G20 leaders’ summit in Osaka, Japan, where leaders asked the board to continue with work and advise them accordingly on multilateral responses as requisite. Quarles insists that crypto-assets “do not pose a threat to global financial stability at this point, but that they remain vigilant to existing and emerging risks.”
He continues to say, “However, the introduction of global stablecoins could pose a host of challenges to the regulatory community, not least because they have the potential to become systematically important including through the substitution of domestic currencies.”
The chairperson proceeded to highlight the challenges posed by stablecoins and listing them as financial stability: consumer and investor protection, data privacy and protection, financial integrity including AML/ CFT and know-your-customer compliance: mitigation of tax evasion, fair competition and antitrust policy market, integrity sound and efficient governance, cybersecurity and operational risks and also appropriate legal basis.
He is quoted in part to write, “Global stablecoins might offer a vehicle for cross-border payments and remittances for a large number of users. Stablecoin projects with conceivably global scope and magnitude must meet the highest regulatory standards and be subject to prudential supervision and oversight.”
The FSB is as of current assessing how the existing regulatory outfit applies to stablecoins and deliberates on whether any regulatory gaps do need to be filled. The border has come up with the recommendation of prioritising the regulatory gap issue. The FSB will continue submitting on issues concerning stablecoins to the G20 finance ministers and Central Bank governors meeting in Washington, DC this month.
The board is further expected to submit a review report to the group on April 2020, and its final report is set to be released by July 2020. Randalls’ letter also references the G7 working groups’ preliminary assessment of opportunities and challenges posed by stablecoins. It reads in part, “the G7 believes that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed.”
That notwithstanding, the G7 report drafted by the chairman of the FSB notes that even though concerns have been addressed to some point, stablecoin projects may still not obtain regulatory approvals saying “addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.”