On April 14, 2020, the Financial Stability Board (FSB) published a consultation paper set rules ahead of “global stable coin”(GSC) arrangements. It will deliver to G20 Finance Ministers and Central Bank Governors virtual meeting on April 15.
FSB writes 10 high-level recommendations.
- Authorities should have and utilize the necessary powers and tools, and adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement and its multi-functional activities, and enforce relevant laws and regulations effectively.
- Authorities should apply regulatory requirements to GSC arrangements on a functional basis and proportionate to their risks.
- Authorities should ensure that there is comprehensive regulation, supervision and oversight of the GSC arrangement across borders and sectors. Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication and consultation in order to support each other in fulfilling their respective mandates and to facilitate comprehensive regulation, supervision, and oversight of a GSC arrangement across borders and sectors.
- 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.
- Authorities should ensure that GSC arrangements have effective risk management frameworks in place especially with regard to reserve management, operational resiliency, cybersecurity safeguards and AML/CFT measures, as well as ‘fit and proper’ requirements.
- Authorities should ensure that GSC arrangements have in place robust systems for safeguarding, collecting, storing and managing data.
- Authorities should ensure that GSC arrangements have appropriate recovery and resolution plans.
- 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.
- 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.
- 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
No stable coin reach the risks yet
Mentioned by the paper, no stable coins have reached a scale that could pose financial stability risks yet. However, the existing stable coins or those at the development could potentially scale quickly. If these stable coins are used in a large and cross-border user base, it may challenge regulations within jurisdictions and internationally.
Some potential candidates for GSC
As we know, the most popular stable coins now are Tether (USDT), others include DAI, TrueUSD … etc. All these stable coins haven’t widely used in wholesale and retail. Most of them used for storing value or trading in crypto exchanges and may not make financial stability risks yet.
However, stable coin under development like Facebook Libra may extend quickly. It may affect more than 20billion people cross-border. Note that the paper didn’t mention about Libra project even it’s the most likely candidate for GSC for wholesale and retail usage. Also, the paper didn’t discuss the central bank digital currencies CBDCs.
Central Bank Digital Currency and the Future of Payment and Settlement Systems
Some members in Libra Association join the Celo Alliance
FSB consults on regulatory, supervisory and oversight recommendations for “global stable coin” arrangements