Regulators in multiple jurisdictions require more oversight of cryptocurrencies and stable coins Cadwalader, Wickersham & Taft LLP

In the last week, there have been a number of announcements or statements from financial regulators that require more supervision of cryptocurrencies, especially stack coins.

Federal Reserve Deputy Speaker Lael Brainard gave a speech entitled “Crypto-Assets and Decentralized Finance through a Financial Stability Lens,” at a Bank of England conference on July 8. On 11 July, the Financial Stability Board (“FSB”) issued its Statement on international regulation and supervision of activities with cryptocurrencies. Yesterday, the Committee on Payments and Market Infrastructures (“OICU”) and the Board of the International Organization of Securities Commissions (“IOSCO”), through the Bank for International Settlements (“BIS”), issued guidance on the application of principles for financial activities. Market infrastructure for stablecoin events.

Deputy Brainard’s speech

In his speech on Friday, Vice President Brainard stated his view on the importance of “ensuring that the regulatory environment includes crypto-financing.” She stated that “the crypto-financial system proves to be susceptible to the same risks that are too familiar from traditional finance, such as influence, settlement, opacity and maturity and liquidity transformation,” and should therefore be subject to similar regulation and supervision. as traditional finance, citing recent losses on a number of stablecoins. Despite the recent losses, Deputy CEO Brainard noted that “the cryptocurrency system does not yet appear to be so large or so interconnected with the traditional financial system that it poses a systemic risk.”

Deputy Brainard also discussed the central bank’s digital currency (“CBDC”). She noted that “there may be a benefit to future financial stability by having a digital indigenous form of secure central bank money …” While noting that no decision has been made in the United States to issue a CBDC, her statement may be that strongest support a member of the Federal Reserve Board has provided for a CBDC.

FSB statement

The FSB Declaration of July 11 followed a similar theme as Deputy Brainard’s speech. The FSB noted that “[t]The recent turmoil in the cryptocurrency markets highlights the importance of continuing the ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risk posed by cryptocurrencies, including so-called stack coins. ” The FSB went on to note that “stack coins should be captured by robust regulations and supervision by relevant authorities if they are to be used as a widely used means of payment or otherwise play an important role in the financial system.” The FSB stated that it will report to the G20 finance ministers and central bank governors in October with possible approaches.

OICU-IOSCO Guide

The OICU-IOSCO report “provides guidance on the application of the Principles of Financial Market Infrastructures (” PFMIs “) to stablecoin arrangements (” SAs “) considered as systemically important financial market infrastructures (” FMIs “), including the entities integrated into such schemes.” The fact that the guide focuses on how to use the existing PFMIs on the emergence of stable coins follows another theme articulated in Deputy Brainard’s speech – that equal risks should have equal regulations.The OICU-IOSCO report highlights four PFMI principles that are particularly relevant for stablecoin events: (1) management, (2) comprehensive risk management, (3) final settlement, and (4) cash settlement.