Fintech News Singapore
April 11, 2024
The Bank for International Settlements (BIS) has published a report, “Stablecoins: Regulatory Response to Stability Promises,” which analyzes the regulatory environment for stablecoins in seven jurisdictions.
The report, authored by Juan Carlos Crisanto, Johannes Ehrentraud and Denise Garcia Ocampo, highlights the growing importance of stablecoins in the financial landscape and points to their potential to reflect the value of fiat currencies.
But it also acknowledges the difficulty of maintaining a stable value, a problem that regulators around the world are working diligently to address.
This document meticulously compares the regulatory frameworks of 11 authorities within their respective jurisdictions, highlighting the proactive measures being taken to mitigate the various risks associated with stablecoin issuance, particularly those linked to single-fiat currencies.
These efforts address a comprehensive range of regulatory issues, including but not limited to licensing requirements, reserve asset management, redemption rights, capital adequacy, consumer protection, anti-money laundering (AML) and compliance with the Financing of Terrorism (CFT) guidelines. . .
Crucially, BIS’ analysis found that while stablecoins promise stability, maintaining parity in value with reference assets and ensuring redemption on demand remains difficult.
This nuanced perspective identifies that stablecoins, pegged to a single currency and backed by traditional financial assets, have significant potential for widespread payment use.
Nonetheless, the report also points out serious risks, including instances of stablecoins being unpegged, concerns about illicit activity, and potential threats to financial stability.
Notable aspects of the report include the identification of common regulatory requirements across jurisdictions, including the establishment of two types of authorization regimes for stablecoin issuers and an emphasis on maintaining reserves in segregated accounts.
However, the report also expressed concerns about the lack of consistency and coordination in stablecoin oversight among regulators, citing differences in terminology and regulatory treatment between jurisdictions.
The summary concludes with a call for increased international cooperation to prevent regulatory fragmentation and ensure a harmonized approach to stablecoin supervision.
As adoption of these digital assets grows, BIS emphasizes the importance of a regulatory framework that balances innovation and risk mitigation, and ensures that stablecoins are compatible with other digital currencies such as central bank digital currencies (CBDCs) and tokenized deposits. Emphasizes the possibility of operation.
This approach is seen as critical to promoting an integrated global financial system and creating an effective and consistent regulatory environment for stablecoins.