- Many existing stablecoins would fail to meet the high-level recommendations set by global standard setters such as the FSB.
- The FSB, the financial regulator funded by the BIS, plans to finalize its recommendations for regulating crypto and stablecoins by July this year.
Many existing stablecoins would fail to meet the high-level recommendations set by global standard setters such as the Financial Stability Board (FSB), said the FSB Chair Klaas Knot.
Knot on 20 February stated in a letter to G20 finance ministers and central bank governors that the upcoming guidance of the Board will focus on strengthening stablecoin governance frameworks, redemption rights, and stabilization mechanisms.
The FSB, the financial regulator funded by the Bank for International Settlements (BIS), plans to finalize its recommendations for regulating crypto and stablecoins by July, according to its work plan for 2023 which was published on Monday.
Stablecoins are cryptocurrencies whose value is tied to the value of other assets such as the U.S. dollar or the Euro. Regulators around the world have taken steps to oversee payments-focused stablecoins, the majority of which are backed by fiat currency reserves.
Though bodies issuing stablecoins have made efforts to reduce private debt and improve transparency, Knot’s note suggests that these measures may not be sufficient.
Knot added in his letter that many existing stablecoins would also fail to meet international standards set by payments or securities standard setters.
FBS contemplates collaborating with Standard-setting Bodies for DeFi Regulation
The FSB warned in February last year that crypto risks to financial stability could rapidly escalate. Following numerous company failures last year such as those of blockchain protocol Terra and crypto exchange FTX, regulators around the world, including the FSB, have increased efforts to oversee the sector.
The FSB announced last week that it will work with other standard-setting bodies to determine how decentralized finance (DeFi) should be regulated.
It also released a report on the financial stability risks of DeFi, highlighting its vulnerabilities and transmission channels. The report claims that the actual degree of decentralization in DeFi systems frequently deviates significantly from the stated claims of the founders.