Unharmonized regulation threatens stablecoin usability — BIS report

In a report from the Bank for International Settlements (BIS), it was revealed that the widespread use of stablecoins is being impeded by the lack of harmonized regulations across different countries, based on the responses of 11 jurisdictions. The authors emphasized the importance of regulating stablecoins as a matter of priority, but the varying regulatory frameworks could potentially create risks when attempting to incorporate them into the global financial infrastructure.

The report pointed out that while most regulatory frameworks allow issuers to operate, set reserve requirements, manage risks, and implement Anti-Money Laundering (AML) measures, the specific ways that stablecoins are issued can determine which regulatory category they fall under – be it banking, securities, commodities, or payment systems.

Unharmonized regulation threatens stablecoin usability — BIS report

In addition, it’s important to note that there are variations in the specifics of regulations, return policies, and the way stablecoins are defined among different regions. For instance, certain countries classify algorithmic stablecoins, which aren’t linked to external assets, similarly to fiat-backed stablecoins. However, the United Kingdom, Japan, and Singapore have distinct regulatory frameworks for them. Meanwhile, some nations in the United Arab Emirates have prohibited algorithmic stablecoins outright. (Source: Report)

“Differences appear to be largely driven by the variety of stablecoin design features, perceived risks associated with their issuance and the nature of the issuing entity. […] The resulting fragmentation may pose significant challenges for an integrated financial system.”

Reserves may have to be segregated in different ways, placed in the hands of custodians subject to differing requirements or, in the case of the U.K., placed in a statutory trust. Audit and liquidity requirements also vary greatly.

In simpler terms, the rules for technology and cybersecurity are generally consistent. It’s important to conduct further research on how stablecoins, central bank digital currencies, tokenized deposits, and other digital assets interact with one another.

Unharmonized regulation threatens stablecoin usability — BIS report

The report aligns with the BIS’s call for cooperation among governments on addressing stablecoin regulations, which they proposed in February. Their suggestions include dealing with disclosure, risk management, redemption, and related matters.

Many organizations based internationally, including the IMF, Financial Stability Board, FATF, Basel Committee, and IOSCO, are working to develop policies regarding stablecoins.

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2024-04-11 00:03