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Monday 18 November 2019

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Stablecoins ‘could come under existing regulation’

Written by Peter Walker
05/11/19

Existing securities rules could apply to digital currency initiatives, like Facebook’s Libra, to help realise its benefits, according to International Organization of Securities Commissions (IOSCO).

At its meeting on 30 October, the regulator’s board met to consider the risks and benefits arising from ‘stablecoin’ initiatives with a potential global reach, and how securities market regulation may apply to such initiatives.

After examining several stablecoin initiatives, the board acknowledged that they can potentially offer benefits to market participants, consumers and investors.

“However, it is also aware of potential risks in a number of areas, including consumer protection, market integrity, transparency, conflicts of interest and financial crime, as well as potential systemic risks,” read a statement.

A stablecoin is a digital currency tied to a ‘stable’ asset or basket of assets. Facebook’s plan is to peg Libra to bank deposits and government securities across several major currencies. However, the social media giant’s proposals have raised concerns around consumer protection, money laundering and disruption to traditional monetary systems.

To support its discussions, the IOSCO FinTech Network produced an assessment of how existing IOSCO principles and standards could apply to global stablecoin initiatives.

This concluded that a case-by-case approach is needed to establish which rules, and national regulatory regimes, would apply.

A detailed understanding of how the particular proposed stablecoin is expected to operate is therefore needed, including the rights and obligations it confers on participants and the continuing obligations of the sponsor, noted the statement.

Ashley Alder, chair of the IOSCO board, said: “Our analysis has shown that so-called ‘stablecoins’ can include features that are typical of regulated securities – this means IOSCO principles and standards may apply to stablecoins depending on how they are structured, including those related to disclosure, registration, reporting and liability for sponsors and distributors.”

IOSCO pointed out that initiatives like Libra are “rightly subject to significant international and public scrutiny” and it agreed with the recent G20 statement that global stablecoins with potential systemic footprints give rise to a set of serious public policy and regulatory risks.

“We therefore encourage international collaboration, so the risks relating to stablecoins can be identified and mitigated, and the potential benefits realised,” IOSCO stated.

The recent G7 Report outlined a number of concerns and IOSCO promised to participate fully in the Financial Stability Board’s follow-up work, working closely with other standard setting bodies to ensure a coordinated response.

It is important that those seeking to launch stablecoins, particularly proposals with potential global scale, engage openly and constructively with all relevant regulatory bodies where they may be seeking to operate,” the statement concluded.



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