Andrew Bailey, the Chair of the Financial Stability Board (FSB), wrote to the G20 leaders ahead of their upcoming meeting. His letter highlighted three changes in the financial system: nonbank financial intermediation, cross border payments and digital assets. All three areas intersect with stablecoins, particularly the latter two.
On the topic of stablecoins, he wrote, “It is important that authorities carefully consider how frameworks are designed to ensure they are effective, consistent, and supportive of safe innovation. Divergences in regulatory and prudential frameworks across jurisdictions could add an additional layer of complexity and potential risk; it will be equally important to consider how stablecoins can operate effectively and safely across borders.” He added that next year’s FSB work program will include a focus on stablecoins and other forms of payment.
In recent years the FSB has published high level recommendations for global stablecoins and crypto-assets. Last month it released a report finding that only nine out of 29 jurisdictions had proposed or finalized stablecoin legislation, meaning few have attempted to implement its recommendations. It found significant variations between jurisdictions relating to liquidity risk management, capital buffers and user redemption. Additionally, it had concerns about the custody of reserves and insolvency frameworks. The net result is ample scope for regulatory arbitrage.
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