G20 Watchdog Recommends New Regulations to Monitor and Control Stablecoins

Leaders from the world’s top industrialized nations are the offensive regarding the emergence of digital currencies that could rapidly gain a huge user base and alter the financial landscape, like Facebook’s proposed Libra coin.

The G20’s regulatory watchdog has released a 62-page document entitled “Addressing the regulatory, supervisory and oversight challenges raised by ‘global stablecoin’ arrangements” that sets out a list of recommendations aimed at controlling the use of stablecoins. Its primary objective is to map out a global strategy for regulating the asset class.

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Stablecoins are a new class of cryptocurrency pegged to assets such as fiat money and gold to minimize price volatility. They leverage blockchain technology and digitization to make efficient domestic and cross-border payments. As a store of value, they can also facilitate cryptocurrency trades, maintaining a fixed price as investors move in and out of various coins.

FSB’s list of 10 recommendations, released on Tuesday, reveal that central banks are concerned about Facebook’s plans to roll out Libra, a potentially powerful stablecoin with the ability to rival traditional currencies in cross-border transactions, compromising the status quo.

While financial rules that regulate traditional payments and customer checks do apply to stablecoins, addressing certain risks associated with crypto assets, the FSB has identified specific issues with cross-border stablecoins. The recommended solution is to implement a flexible, cross-border cooperation that can control these crypto assets.

To address vulnerabilities posed by stablecoins and to ensure that they do not undermine financial stability, the FSB recommends that regulators should have the power to limit or prohibit activities tied to this particular class of crypto assets.

“Authorities within a jurisdiction, either independently or collectively, should have and utilise the appropriate powers and capabilities to regulate, supervise, oversee and if necessary prohibit effectively the activities being conducted and services being offered to users in or from their jurisdiction and the attendant risks that these services and activities may pose.

This may include, for example, services and activities related to the governance/control of the stablecoin arrangement, operating the infrastructure of the stablecoin arrangement, issuing/redeeming stablecoins, managing stablecoin reserve assets, providing custody/trust for stablecoin reserve assets, trading/exchanging stablecoins, or storing the keys providing access to stablecoins.”

The regulatory body also says that stablecoin operators need to manage risks, be operationally resilient, as well as take measures against cyber attacks and systems to curb terrorist financing and money laundering.

“Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by GSCs (global stablecoins).”

The recommendations, which reference the most widely traded cryptocurrency, the stablecoin Tether (USDT), as well as other high-volume stable crypto assets such as USDC, TUSD, PAX and DAI, will be officially presented to the G20 leaders.

You can check out the full list of recommendations here.

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