The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems. The consultative report contains guidance on the application of the Principles for Financial Market Infrastructures (PFMI) to systemically important stablecoin arrangements. Regulators seek feedback, by December 01, 2021, on the consultative report in general as well as on the questions set out in the report. The standard-setters acknowledge that some issues identified in this report may require further clarification and follow-up work in 2022 and beyond, as the features of certain projects and stablecoin arrangement functions evolve.
Stablecoin arrangements may present some notable and novel features, which relate to the potential use of settlement assets that are neither central bank money nor commercial bank money and carry additional financial risk; the novel features also relate to, the interdependencies between multiple stablecoin arrangements functions, the degree of decentralization of operations and/or governance, and a potential large-scale deployment of emerging technologies such as the distributed ledger technology. This report proposes guidance on the application of the PFMI with respect to these features of stablecoin arrangements, which should help stablecoin arrangements and relevant authorities in applying the PFMI to systemically important stablecoin arrangements. The guidance covers issues related to governance, comprehensive risk management, settlement finality, and money settlements:
- When seeking to observe this principle of governance, a systemically important stablecoin arrangements should consider how the stablecoin arrangements' ownership structure and operation allow for clear and direct lines of responsibility and accountability.
- A systemically important stablecoin arrangement should develop appropriate risk-management frameworks and tools and should identify and implement appropriate mitigants, taking an integrated and comprehensive view of its risks.
- A systemically important stablecoin arrangement should provide clear and final settlement, regardless of the operational settlement method used; it should clearly define the point at which a transfer on the ledger becomes irrevocable and technical settlement happens and make it transparent whether and to what extent there could be a misalignment between technical settlement and legal finality.
- A stablecoin used by a systemically important stablecoin arrangement for money settlements should have little or no credit or liquidity risk. In assessing the risk presented by the stablecoin, the stablecoin arrangement should consider whether the stablecoin provides its holders with a direct legal claim on the issuer and/or claim on, title to or interest in the underlying reserve assets for timely convertibility at par into other liquid assets such as claims on a central bank. It should also consider whether the stablecoin has a clear and robust process for fulfilling holders’ claims in both normal and stressed times.
This report is not intended to create additional standards for stablecoin arrangements but rather to provide more clarity to systemically important stablecoin arrangements and relevant authorities as those stablecoin arrangements seek to observe the PFMI. CPMI and IOSCO may further examine regulatory, supervisory, and oversight issues associated with stablecoin arrangements and, as appropriate, coordinate with other standard-setting bodies to address the outstanding gaps. CPMI and IOSCO believe that guidance on the application of the PFMI with respect to these features of stablecoin arrangements is useful for stablecoin arrangements and relevant authorities in applying the PFMI to systemically important stablecoin arrangements. The guidance focuses on a subset of the PFMI for which the CPMI and IOSCO consider that guidance is warranted in light of notable features of stablecoin arrangements as compared to existing financial market infrastructures. This guidance should be read in conjunction with the relevant principles, key considerations, and explanatory notes of the PFMI as well as with the further considerations provided in Section 3. This report is a key contribution to the G20 roadmap on cross-border payments and supports the FSB work in this area.
Comment Due Date: December 01, 2021
Keywords: International, Banking, Stablecoin, Fintech, Regtech, Governance, PFMI, FMI, Cross-Border Payments, G20, Operational Risk, Systemic Risk, CPMI, IOSCO
Previous ArticleEBA and EIOPA Set Out Work Priorities for 2022
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
The Federal Deposit Insurance Corporation (FDIC) issued supplemental instructions for the Consolidated Reports of Condition and Income—that is, Call Reports FFIEC 031, FFIEC 041, and FFIEC 051—for the September 30, 2021 reporting date.