Many Stablecoins may not meet the standards of the Crypto Asset Regulations: FBS
The Financial Stability Board (FSB) has revealed that many stablecoins will not meet the standards set out in the recommendations for the regulation of cryptoassets that will be released later this year. The regulator noted that the recommendations would be aimed at maintaining effective “stabilization” mechanisms and strengthening redemption rights.
The FSB is a global organization that monitors and provides guidance on the stability and resilience of the international financial system. The watchdog was created by the G20 countries as a replacement for the Financial Stability Forum in 2009 after the 2008 financial crisis.
The FSB will issue Stablecoin recommendations
According to one official document published on Monday, the FSB believes tighter regulations are essential for the crypto sector, given the number of high-profile scandals that rocked the industry last year.
“The events of the past year, such as the collapse of FTX, have highlighted the inherent volatility and structural vulnerabilities of cryptoassets. We have now seen firsthand that the failure of a key intermediary in the cryptoasset ecosystem can quickly transmit risks to other parts of that ecosystem,” said the financial watchdog.
The regulatory effort is in line with one announcement made last year about the FSB’s intentions to set up a timeline for global crypto regulators in 2023. The recommendations aim to limit the impact of the implosion of cryptoassets on the wider financial system.
A core aspect of the regulations is focused on stablecoins. And Terra-Luna’s $40 billion ecosystem collapse in May has already tarnished the reputation of such assets.
The FSB is now seeking to strengthen global frameworks for the management of stablecoins, as such assets have characteristics that can exacerbate threats to financial stability.
Many Stablecoins may not meet the FSB’s standards
Although the recommendations have yet to be released, the FSB has already concluded that many existing stablecoins will not meet the set “high-level” standards, let alone detailed rules to be set by sector bodies.
“Importantly, the FSB’s work concludes that many existing stablecoins will not currently meet these high-level recommendations, nor would they meet international standards and supplementary, more detailed BIS Committee on Payments and Market Infrastructures-International Organization of Securities Commissions guidance, FSB added.
Furthermore, the FSB intends to publish a joint document with the International Monetary Fund (IMF) to synthesize the outcome of policy findings on cryptoassets.
After completion of the work, the FSB will coordinate the regulation of cryptocurrencies according to the principle of “same activity, same risk, same regulation”.
