- Many existing stablecoins will not meet the high-level recommendations set by global standard setters like the FSB.
- The FSB, the BIS-funded financial regulator, plans to finalize its recommendations to regulate cryptocurrencies and stablecoins in July of this year.
FSB Chairman Klaas Knott said that many existing stablecoins will not meet high-level recommendations set by global standard-setters such as the Financial Stability Board (FSB).
Nott said in a letter to G20 finance ministers and central bank governors on Feb. 20 that the board’s next guidance will focus on strengthening the stablecoin governance framework, redemption rights, and stabilization mechanisms. .
The FSB, the financial regulator funded by the Bank for International Settlements (BIS), plans to finalize its recommendations to regulate cryptocurrencies and stablecoins by July in accordance with its 2023 action plan that was published on Monday.
Stablecoins are cryptocurrencies whose value is tied to the value of another asset, such as the US dollar or the euro. Regulators around the world have stepped in to oversee payment-focused stablecoins, most of which are backed by fiat currency reserves.
While stablecoin issuing agencies have made efforts to reduce private debt and improve transparency, Knott’s note suggests these measures may not be enough.
Nott said in his letter that many existing stablecoins will also not meet international standards set by payment or security standard setters.
FBS seeks to collaborate with standard-setting bodies for DeFi regulation
The FSB warned in February of last year that the risks of cryptocurrencies to financial stability could increase exponentially. Regulators around the world, including the FSB, have stepped up efforts to oversee the sector, following several failures by companies in the past year, such as the Terra blockchain protocol and FTX cryptocurrency exchange.
The FSB announced last week that it would work with other standard-setting bodies to determine how decentralized finance (DeFi) should be regulated.
It also published a report on the financial stability risks of DeFi, highlighting its vulnerabilities and transmission channels. The report claims that the actual degree of decentralization in DeFi systems often differs significantly from the stated claims of the founders.