The G20’s financial watchdog, the Financial Stability Board (FSB), has published regulatory recommendations opposing the trans-national ambitions of “global stablecoins,” such as Facebook’s Libra project.
The FSB’s report offers regulatory recommendations to G20 member states and the broader international community intended to prevent stablecoin projects from using opportunities for "regulatory arbitrage" and becoming embedded within the financial structures of national economies.
The report warns that so-called global stablecoins (GSC) could become “systemically important” across jurisdictions, undermining the capacity for governments to dictate monetary and investment policy within their borders.
“The decentralized nature of GSC arrangements could pose governance challenges; stabilization mechanisms and redemption arrangements could pose market, liquidity, and credit risks.”
The report also notes risks relating to the technology underpinning stablecoins, warning that “the infrastructure and technology used for recording transactions, and accessing, transferring and exchanging coins could pose operational and cyber-security risks.”
Unique challenges relating to the collection and storage of data relating to GSC transactions were also identified.
The FSB emphasizes that the challenges stable tokens pose to the financial governance of nation-states are currently limited by their relatively small adoption. It urges lawmakers to establish comprehensive regulatory frameworks before GSCs gain significant traction:
“Ensuring appropriate regulation, supervision, and oversight within jurisdictions and internationally will therefore be important to prevent any potential gaps and avoid regulatory arbitrage.”
The FSB also recommends collaboration between national supervisory authorities to identify “potential gaps in their domestic frameworks” and “reduce opportunities for cross-sectoral and cross-border regulatory arbitrage.”
However, despite warning that a lack of international cooperation will open the door to regulatory arbitrage, a survey of 51 jurisdictions found disparate oversight regimes across various nations, including more than one dozen different legal classifications for stablecoins.
The FSB added it will frequently review its recommendations to keep pace with the evolving GSC sector.
Despite emphasizing the risks associated with stablecoins, the report also notes significant benefits offered by stablecoins, including efficiency savings in the provision of financial services and payments, and greater economic inclusion internationally.