FSB warns stablecoin regulatory frameworks remain “untested” in crisis

In his letter to the G20 Finance Ministers and Central Bank Governors, Andrew Bailey, the Chair of the Financial Stability Board (FSB), highlighted vulnerabilities in global stablecoins, including multi-issuance arrangements. These include Circle’s USDC and the Paxos Global Dollar, which are both issued from multiple locations. An accompanying note warns that regulatory frameworks remain untested in severe stress and insolvency, with supervision, crisis management, accountability and cross border cooperation all still underdeveloped. It also noted that most stablecoin usage is still concentrated in crypto markets as well as some usage as a store of value in emerging economies.

To address the challenges, the FSB wants improved monitoring of cross border stablecoin vulnerabilities and is calling for further adoption of its 2023 recommendations on global stablecoins, which could bring more consistency to the regulatory patchwork worldwide. The implication is that where laws vary significantly between jurisdictions, a stress event could push redemptions toward one region. The FSB also encourages deeper cross border cooperation between supervisors and wants more research into planning for stablecoin distress or failure. The paper delves into improving data quality.

While a focus on risks can produce a one-sided picture, the paper struck a more balanced tone. The FSB identified the international mobility of stablecoins as a source of risk. Multi-issuance stablecoins are designed to rebalance reserves across jurisdictions to match where holders redeem. Given cross border usage, that location can shift quickly and cannot always be tracked. Nonetheless, the FSB acknowledged that this international accessibility is what makes stablecoins “a potentially beneficial innovation”.

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