Cryptoregulation weekly: Same risk, same reg

A couple of international regulatory organizations have formally recommended that stack coins must comply with all existing international payment, clearing and settlement standards.

The Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) said on Wednesday (July 13) that “guidance is a major step forward in using” same risk, same regulatory principles to “systemically important stablecoin events.”

This means that national regulations should require that they “comply with all relevant principles of the Financial Market Infrastructure Principles (PFMI),” BIS said in a release.

It also requested that stack coins be made interoperable.

The guide comes one month after the implosion of the Terra / LUNA stablecoin ecosystem. Investors lost confidence in the ability of the algorithmic terraUSD (UST) stackcoin, which relied on an arbitrage incentive mechanism to maintain its bond, instead of a one-to-one support reserve of fiat to support its dollar bond. This led to a race that led to the collapse of UST – then the No. 3 stablecoin by market value – and its partner token LUNA to virtually no value, wiping out $ 48 billion in less than a week.

“Recent developments in the cryptocurrency market have again led to an urgency for the authorities to address the potential risks posed by cryptocurrencies, including more broad-based stack coins,” said Jon Cunliffe, CPMI Chairman and Deputy Governor of Financial Stability at the Bank of England. “The recent market disruptions, although costly for many, were not systemic events. But they do emphasize how quickly trust can be eroded and how volatile cryptocurrencies can be.”

As the link between cryptocurrencies and traditional finance grows stronger, he warned that such events could well pose systemic threats in the future, he added.

Regulators must meet the same stringent risk management, governance and transparency standards for systemically important stack coins required by the existing financial market, said Ashley Alder, Chairman of IOSCO and CEO of the Hong Kong Securities and Futures Commission.

ECB, Fed says go faster

It comes on the heels of the European Parliament and the European Commission’s agreement that the EU’s landmark Markets in Crypto Assets (MiCA) regulatory proposal added a last minute agreement that would limit large stable coins to no more than € 200 million in transactions per day.

See also: EU agreement on crypto-regulation limits Stablecoins, omits NFTs and DeFi

On Monday (July 11), the European Central Bank (ECB) issued several reports warning that the financial stability risk arising from cryptocurrencies is increasing, and called for “immediate implementation of appropriate regulatory, supervisory and supervisory frameworks”.

This was followed by a similar warning from Federal Reserve Deputy Chief Lael Brainard on July 8. She said regulations with strong teeth must be adopted “before the cryptoecosystem becomes so large or interconnected that it could pose a risk to the stability of the wider financial system.”

Read more: The ECB calls for the rapid implementation of MiCA

US recommendations in October?

Also on Monday, the US Financial Stability Board promised that it would propose a set of broad regulations for cryptocurrencies by October.

Says that member authorities “will implement current international standards in national regulatory and supervisory frameworks,” including the International Financial Action Task Force (FATF) Recommendation on Anti-Money Laundering (AML) regulations and the “travel rule” requiring the identification of senders and recipients of crypto transactions.

And on July 7, Finance Minister Janet Yellin published a report asking the United States to engage more actively with other countries to write complementary and compatible cryptocurrencies.

“Uneven regulation, supervision and compliance across jurisdictions creates opportunities for arbitrage and increases the risk of financial stability and the protection of consumers, investors, businesses and markets,” it said, warning that coordination was necessary to investigate illegal transactions.

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