Many existing stablecoins will not meet the “high-level” recommendations soon to be set by global standard-setting bodies like the Financial Stability Board (FSB), said FSB Chairman Klaas Knot. said on February 20.
In future guidance, the FSB will aim to strengthen stablecoin governance frameworks, redemption rights and stabilization mechanisms, Knot said in a letter to G20 finance ministers and central bank governors.
According to its 2023 work plan published on February 20, the FSB is due to finalize recommendations on the regulation of crypto-assets (virtual currencies) and stablecoins by July. A stablecoin is a crypto asset that is pegged to the value of another asset such as the US dollar or euro.
Regulators around the world have taken steps to oversee payment-specific stablecoins, most of which are backed by fiat reserves in the form of cash equivalents and are more notorious. They are backed by unsecured short-term debt. Stablecoin issuers have tried to separate private debt from reserves and increase transparency, but Knott’s message suggests that these measures may not be enough.
In the letter, Knot added that many existing stablecoins would not meet international standards set by payment and securities standards-setting bodies.
In February 2022, the FSB warned that crypto risks to financial stability “could escalate rapidly.” Regulators around the world, including the FSB, are stepping up efforts to oversee the sector following the 2022 collapse of a number of companies, including token issuer Terra and cryptocurrency exchange FTX.
Last week, the FSB announced it would work with other standards bodies to determine how decentralized finance (DeFi) should be regulated. He also plans to publish a paper on regulatory issues related to the International Monetary Fund (IMF) and crypto-assets.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Existing Stablecoins Won’t Meet Forthcoming Global Standards: FSB