FSB releases recommendations for the regulation of stablecoins
The Financial Stability Board (FSB) has published a set of policy recommendations for the regulation of crypto-asset activities and global stablecoins (GSC) to promote the comprehensiveness and international consistency of regulatory and supervisory approaches.
The FSB is an international organisation that coordinates ‘the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies’. The FSB’s recent final report addresses key risks associated with financial stability, while considering lessons from events of the past year in crypto-asset markets, and feedback received during publication consultation of the FSB’s proposals.
In the final report, 10 revised high-level recommendations are given, which seek to promote consistent and effective supervision and oversight of GSC arrangements.
In this update, we provide a brief overview of each recommendation made in the FSB’s final report.
Overview
The FSB’s 10 recommendations in relation to GSC arrangements include:
- authorities’ readiness to regulate and supervise global stablecoin arrangements;
- comprehensive oversight of GSC activities and functions;
- cross-border cooperation, coordination and information sharing;
- governance structures and decentralised operations;
- risk management;
- data storage and access to data;
- recovery and resolution of the GSC;
- disclosures;
- redemption rights, stabilisation, and prudential requirements; and
- conformance with regulatory, supervisory and oversight requirements before commencing operations.
Recommendations on GSC
Recommendation 1: authorities’ readiness to regulate and supervise global stablecoin arrangements
Authorities should have and utilise the appropriate powersand tools, and adequate resources, to comprehensively regulate, supervise, and oversee a GSC arrangement and its associated functions and activities, and enforce relevant laws and regulations effectively.
Recommendation 2: comprehensive oversight of GSC activities and functions
Authorities should apply comprehensive and effective regulatory, supervisory and oversight requirements consistent with international standards to GSC arrangements on a functional basis and proportionate to their risks insofar as such requirements are consistent with their respective mandates.
Recommendation 3: cross-border cooperation, coordination and information sharing
Authorities should cooperate and coordinate with each other, both domestically and internationally, to foster efficient and effective communication, information sharing and consultation in order to support each other in fulfilling their respective mandates and to ensure comprehensive regulation, supervision, and oversight of a GSC arrangement across borders and sectors, and to encourage consistency of regulatory and supervisory outcomes.
Recommendation 4: governance structures and decentralised operations
Authorities should require that GSC arrangements have in place and disclose a comprehensive governance framework with clear and direct lines of responsibility and accountability for all functions and activities within the GSC arrangement.
Recommendation 5: risk management
Authorities should require that GSC arrangements have effective risk management frameworks in place that comprehensively address all material risks associated with their functions and activities, especially with regard to operational resilience, cyber security safeguards and anti-money laundering and counter-terrorism financing measures, as well as ‘fit and proper’ requirements, if applicable, and consistent with jurisdictions’ laws and regulations.
Recommendation 6: data storage and access to data
Authorities should require that GSC arrangements have in place robust frameworks, including systems and processes for the collecting, storing, safeguarding and timely and accurate reporting of data. Authorities should have access to the data as necessary and appropriate to fulfil their regulatory, supervisory and oversight mandates.
Recommendation 7: recovery and resolution of the GSC
Authorities should require that GSC arrangements have appropriate recovery and resolution plans.
Recommendation 8: disclosures
Authorities should require that GSC issuers and, where applicable, other participants in the GSC arrangements provide all users and relevant stakeholders with comprehensive and transparent information to understand the functioning of the GSC arrangement, including with respect to the governance framework, any conflicts of interest and their management, redemption rights, stabilisation mechanism, operations, risk management framework and financial condition.
Recommendation 9: redemption rights, stabilisation, and prudential requirements
Authorities should require that GSC arrangements provide a robust legal claim to all users against the issuer and/or underlying reserve assets and guarantee timely redemption. For GSCs referenced to a single fiat currency, redemption should be at par into fiat. To maintain a stable value at all times and mitigate the risks of runs, authorities should require GSC arrangements to have an effective stabilisation mechanism, clear redemption rights and meet prudential requirements.
Recommendation 10: conformance with regulatory, supervisory and oversight requirements before commencing operations
Authorities should require that GSC arrangements meet all applicable regulatory, supervisory and oversight requirements of a particular jurisdiction before commencing any operations in that jurisdiction and adapt to new regulatory requirements as necessary and as appropriate.
What’s ahead?
By the end of 2025, the FSB will conduct a review on the status of the recommendations. This may assist in determining whether a further review of the recommendations or further action to promote implementation may be necessary.
Please contact John Bassilios if you require assistance with your crypto-asset activities and stablecoins.
This article was written the assistance of Francesca Di Mase, Law Graduate.