On 13 October 2020, the Financial Stability Board (FSB) published the final version of its high-level recommendations for the regulation, supervision and oversight of “global stablecoin” (GSC) arrangements following an earlier public consultation. The report states that GSC arrangements are expected to adhere to all applicable regulatory standards and to address risks to financial stability before commencing operation, and to adapt to new regulatory requirements as necessary.
The report sets out ten high-level recommendations that seek to promote coordinated and effective regulation, supervision and oversight of GSC arrangements to address the financial stability risks posed by GSCs, both at the domestic and international level, while supporting responsible innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches. The recommendations call for regulation, supervision and oversight that is proportionate to the risks, and stress the value of flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements among authorities that take into account the evolving nature of GSC arrangements and the risks they may pose over time.
The recommendations are addressed to authorities at jurisdictional level and focus on privately issued GSCs predominately intended for retail use. Although the recommendations are aimed at global stablecoins, they could be used for other stablecoins, including those that may pose risks to financial stability only in some countries or regions, and, potentially, other crypto-assets that could pose risks similar to some of those posed by GSCs because of comparable international reach, scale and use. The report is intended to primarily address risks to financial stability and therefore does not cover important issues such as anti-money laundering / counter financing of terrorism (AML/CFT), data privacy, cyber security, consumer and investor protection and competition, which however could have consequences for financial stability if they are not properly addressed. The report therefore stresses the importance of addressing these issues as part of a comprehensive effective supervisory, regulatory and oversight framework.
The ten high level recommendations are:
- Authorities should have and utilise the necessary powers and tools, and adequate resources, to comprehensively regulate, supervise and oversee a GSC arrangement and its associated functions and activities, and enforce relevant laws and regulations effectively.
- Authorities should apply comprehensive regulatory, supervisory and oversight requirements and relevant international standards to GSC arrangements on a functional basis and proportionately to their risks.
- 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 ensure 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 resilience, cyber security safeguards and AML/CFT measures, as well as ‘fit and proper’ requirements.
- Authorities should ensure that GSC arrangements have in place robust systems for collecting, storing and safeguarding data.
- Authorities should ensure that GSC arrangements have appropriate recovery and resolution plans.
- Authorities should ensure that GSC arrangements provide users and relevant stakeholders with comprehensive and transparent information necessary to understand the functioning of the GSC arrangement, including with respect to its stabilisation 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 adapt to new regulatory requirements as necessary.