Financial regulators plan to issue crypto asset regulation recommendations targeting stablecoins.
The Financial Stability Board (FSB) has revealed that many stablecoins will not meet the standards set out in its recommendations for crypto asset regulation, which will be published later this year. The regulator noted that the recommendations are aimed at maintaining effective “stablecoin” mechanisms and strengthening redemption rights.
The FSB is a global organization that oversees and provides guidance on the stability and resilience of the international financial system. The regulator was created by the G20 countries to replace the Financial Stability Forum in 2009 following the 2008 financial crisis.
FSB releases stablecoin recommendations
According to an official document published on Monday, the FSB believes that stricter regulation is crucial for the crypto industry given the slew of scandals that rocked the sector last year.
"Events over the past year, such as the FTX collapse, have highlighted the inherent volatility and structural fragility of crypto assets. We have now witnessed first-hand how the failure of key intermediaries in the crypto asset ecosystem can quickly transfer risk to other parts of that ecosystem," the financial regulator said.
The regulatory work is consistent with last year’s announcement that the FSB intends to develop a timetable for a global crypto regulator by 2023. The proposals are intended to reduce the impact of a crypto asset implosion on the broader financial system.
A core aspect of the regulatory framework is the focus on stablecoins, and the collapse of the $40 billion Terra-Luna ecosystem in May has damaged the reputation of such assets.
The FSB now seeks to strengthen the global stablecoin governance framework as such assets have characteristics that could exacerbate threats to financial stability.
Many stablecoins may not meet FSB standards
Although the recommendations have yet to be published, the FSB has concluded that many existing stablecoins do not meet the “high level” of standards set out in the regulation, let alone detailed rules drawn up by sectoral bodies.
“Importantly, the FSB’s work concluded that many existing stablecoins do not currently meet these high-level recommendations, nor are they consistent with international standards and the complementary, more detailed BIS Committee on Payments and Market Infrastructures-International Organization of Securities Commissions guidance,” the FSB added.
Additionally, the FSB intends to publish a joint paper with the International Monetary Fund (IMF) to synthesize the findings on crypto-asset policies.
Once the work is completed, the FSB will coordinate the regulation of cryptocurrencies based on the principle of “same activities, same risks, same supervision.”
