International financial watchdogs are close to approving new rules on the use of stablecoins in financial markets, using the 'same risk, same regulation' mantra that has been aplied to discussions over the reining in of Big Tech and non-bank payment companies.
The influential Committee on Payments and Market Infrastructures and top securities body International Organization of Securities Commissions (Iosco) are calling for comments on a new consultation report
that confirms and clarifies that stablecoin arrangements should observe international standards for payment, clearing and settlement systems.
Jon Cunliffe, chair of the CPMI and deputy governor for financial stability at the Bank of England, says: "The payments landscape has undergone rapid transformation in recent years and continues to evolve at pace. This is happening at the same time as financial innovation offers the prospect of new payment services and greater competition in payments but also potential risks to the financial system. This consultation document is part of an ongoing commitment by the international regulatory community to ensure the principle of 'same risk, same regulation', to identify potential risks and to help develop appropriate oversight to safeguard financial stability."
It follows two years of intensive work - spurred by Facebook's Diem project - by regulators to get to grips with the growing uptake of crypto instruments as a new form of monetary exchange.
Preliminary analysis conducted by CPMI-Iosco as part of an October 2020 Financial Stability Board report found that "the Principles for Financial Market Infrastructures (PFMI) apply to stablecoin arrangements that perform systemically important payment system functions or other financial market infrastructure (FMI) functions".
Today's consultation paper upholds and confirms that determination. Given the novelty and complexity of stablecoin arrangements, it provides clarification and guidance on applying existing standards to SAs, including to some of the novel features of SAs which distinguish them from other payment systems. These include: the potential use of settlement assets that are neither central bank money nor commercial bank money and carry additional financial risk; the interdependencies between multiple SA functions; the degree of decentralisation of operations and/or governance; and a potentially large-scale deployment of emerging technologies such as distributed ledger technology.
Ashley Alder, chair of the Iosco board and CEO of the Hong Kong Securities and Futures Commission, comments: "This report marks significant progress in understanding the implications of stablecoin arrangements for the financial system and providing clear and practical guidance on the standards they need to meet to maintain its integrity. We look forward to receiving submissions to further enhance our insights and recommendations."
The consultation closes on 1 December.