BIS hosted a conference in Basel to discuss policy and regulatory issues posed by the emergence of stablecoin initiatives backed by financial institutions and large technology companies. The conference included participation from senior officials from public authorities worldwide and presentations by Fnality International, the Libra Association, and JP Morgan. The event was convened by the Group of Seven (G7) working group on stablecoins and was chaired by the CPMI Chair Benoît Cœuré. While speaking at a conference in Luxembourg, Mr. Benoît Cœuré highlighted that G7 working group is expected to provide policy recommendations to G7 Ministers and Governors by the time of the IMF-World Bank Annual Meetings in October this year. Meanwhile, FSB has also started looking into the regulatory implications of these initiatives.
Earlier, at a meeting in France in July 2019, the CPMI Chair Benoît Cœuré had provided an update on the work of the G7 working group on stablecoins. He had highlighted that the G7 working group has discussed stablecoin initiatives and identified some key considerations that set a baseline for critical issues to be solved. These comprise only a subset of the considerations necessary to address the full range of public policy priorities:
- Stablecoin initiatives must ensure public trust by meeting the highest regulatory standards and be subject to prudent supervision and oversight. This starts with (but is not limited to) all relevant guidance from the Financial Action Task Force, as well as the Principles for Financial Market Infrastructures (PFMI) issued by the CPMI and IOSCO. Regulatory approaches have to be globally consistent and any gap or inconsistency should be identified and addressed.
- Stablecoin initiatives should demonstrate a sound legal basis, in all relevant jurisdictions, to ensure adequate protection and guarantees to all stakeholders and users. At a minimum, issuers of stablecoins should clearly explain the nature of the commitment they are making to the holders of their coins and any risks involved in owning such assets.
- The governance and risk management framework should ensure operational and cyber resilience.
- The management of the assets underlying the arrangement must be safe, prudent, transparent, and consistent with the nature of obligations to, or reasonable expectations of, coinholders in an effort to ensure broad market integrity and coinholder confidence in good times and in bad times.
Moreover, stablecoins may raise broader issues for the international monetary system, in particular if they become a widespread substitute for cash and deposits in some economies. Significant work by stablecoin developers and further engagement with the public and authorities will be required before they can expect approval by relevant authorities, as the above considerations can only be adequately addressed by ensuring transparency and making more detailed information available for proper assessment. The working group stands ready to take forward its work in coordination with G7 finance ministries, relevant standard-setting bodies, G20, and FSB.
Keywords: International, Basel, Banking, Securities, Stablecoins, Digital Currencies, Cryptocurrency, Fintech, G20, Benoit Coeure, BIS
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