FSB Recommends Common Stablecoins Regulation

The Financial Stability Board (FSB) warns national regulators to review the standards and deal with any possible disruption caused by global stablecoins such as libra. FSB recommends common stablecoins regulation for all businesses, regardless of the technology used.

15 April, 2020 | AtoZ Markets – FSB is a G20 body that advises on ways to improve the global financial system. The FSB has published a comprehensive study on Stablecoins, presenting ten recommendations to regulate Stablecoins effectively. According to the G20, stablecoins can pose risks to financial stability and must be regulated appropriately.

FSB Warns Nations to Mitigate Risks Posed by Stablecoins

The FSB indicated that regulatory frameworks already cover many activities related to stablecoins. But there are other risks for which national regulators may not be prepared.

The introduction of Facebook’s Libra spurred regulators. Libra would create an independent stablecoin based on a basket of currencies. But, governments around the world continue to be vigilant about this project. The FSB calls for comprehensive and transparent stablecoin regulation mirrors other doubts surrounding libra.

The board argued that most of the technologies and mechanisms used in stablecoins had not tested to scale. Digital assets can exhibit hidden vulnerabilities. The board also said the rules should be the same for all businesses that pose a financial risk, regardless of the technology used.

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What is the Danger in Stablecoins?

There were also significant concerns regarding their underlying infrastructure. For example, due to poor scalability, Payment interruptions can be dangerous if an economy depends on these parts. However, the most important question seems to be that of capital controls. FSB stated:

“During times of stress, households in some countries may come to view stablecoins as a safe bet against existing fiats and exacerbate destabilizing capital flows. The volatility of capital flows can have a destabilizing effect on exchange rates and the funding and intermediation of national banks “.

“If users relied on stablecoin to make regular payments, major operational disruptions could quickly affect real economic activity. Large-scale flows of stablecoin funds could test the ability of the supporting high transaction volumes.”

The board also said that national regulators need to monitor the rapid pace of innovation in the area of digital assets. They should try to anticipate any regulatory weakness or gap before it takes effect. All member countries should “clarify regulatory powers and fill potential gaps in their national frameworks to adequately respond to the risks posed by stablecoin.” One of the purposes of cryptocurrency is to empower people in such situations. However, it is considered a threat to stability that may have important implications in the future.

The report is currently under public consultation. The FSB is seeking additional information from 68 member institutions. It includes regulatory agencies from the US, China and the EU, as well as entities such as the World Bank, IMF and BIS. The public consultation period will extend until 15 July, the final report not being expected until October.

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