The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published the final guidance on the application of the Principles for Financial Market Infrastructures (PFMI) to stablecoin arrangements that are considered systemically important financial market infrastructures (FMIs).
The guidance is intended for use by systemically important stablecoin arrangements as they design, develop and operate their services and arrangements, including stablecoin arrangements that have the potential to become systemically important after launch. The guidance is also intended for use by the regulatory, supervisory, and oversight authorities as they carry out their respective responsibilities for systemically important stablecoin arrangements. The final guidance reconfirms that if a stablecoin arrangement performs a transfer function and is determined by authorities to be systemically important, the stablecoin arrangement as a whole would be expected to observe all the relevant Principles for Financial Market Infrastructures (PFMI). Although stablecoin arrangements are considered FMIs based on the functional approach, they may present some novel features as compared with other FMIs. The novel features relate to the potential use of settlement assets that are neither central bank money nor commercial bank money and carry additional financial risk, the interdependencies between multiple stablecoin arrangements functions, the degree of decentralization of operations and/or governance, and a potentially large-scale deployment of emerging technologies such as distributed ledger technology. These novel features of stablecoin arrangements will be useful for stablecoin arrangements and relevant authorities in applying the PFMI to systemically important stablecoin arrangements.
Given the novelty and complexity of stablecoin arrangements, the guidance elaborates on aspects related to governance, framework for the comprehensive management of risks, settlement finality, and money settlements. The guidance does not create additional standards for stablecoin arrangements beyond those set out in the PFMI, but rather aims to provide increased clarity and granularity on how systemically important stablecoin arrangements should approach observing certain aspects of the PFMI. The guidance is a major step forward in applying "same risk, same regulation" to systemically important stablecoin arrangements that are used for payments. It is also a key contribution to the G20 cross-border payments program and supports the work of the Financial Stability Board (FSB) in this area. Going forward, the CPMI and IOSCO will continue to examine regulatory, supervisory, and oversight issues associated with stablecoin arrangements and coordinate with other standard-setting bodies to address the outstanding standards gaps.
Keywords: International, Banking, Securities, Fintech, Regtech, Governance, PFMI, FMI, Cross Border Payments, G20, Operational Risk, Systemic Risk, CPMI, Stablecoins, IOSCO
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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